high coupon bond

the book mentions high coupon bond will exhibit negative convexity. can someone explain why? I thought that negative convexity means if losses are greater than gains. (that is property 4 of price volatility is reversed)

higher coupon bond prices change less in percent terms then low coupons bonds. I am guessing what they are trying to say is that they exhibit some form of negative convexity because they change less the a option free bond. I would not interpret this as being negative convexity like how a callable/prepayable bond would be though. aka dont think of it like the graph, but more along the lines of its characteristics

High coupon bonds don’t exhibit negative convexity.

thats what i thought to Joey, the only bonds that exhibit negative convexity are callable or amoritizing.

getterdone Wrote: ------------------------------------------------------- > higher coupon bond prices change less in percent > terms then low coupons bonds. I am guessing what > they are trying to say is that they exhibit some > form of negative convexity because they change > less the a option free bond. > > I would not interpret this as being negative > convexity like how a callable/prepayable bond > would be though. > > aka dont think of it like the graph, but more > along the lines of its characteristics if what you say is correct, then book should simply say high coupon bonds have low duration. Why would they say negative convexity, check the solutions for q8 from chapter 69.

sorry pepp, only have my FSA book on me

Would it be due to the high risk of Junk bonds? Is there a maximum price people are willing to pay no matter how low the yield goes? then maybe that would trigger the negative convexity.

getterdone Wrote: ------------------------------------------------------- > thats what i thought to Joey, > > the only bonds that exhibit negative convexity are > callable or amoritizing. MBS securities, too ???

MBS securities are callable.