Study Session 10 - Mortgage Securities and Convexity

Looking for some clarity on convexity. Pg. 113 of the Schweser Notes, Book 3 states that positive convexity means that the price of the bond increases at an increasing rate as the interest rate falls below the coupon rate and falls at a decreasing rate as the interest rate rises above the coupon.

I might be forgetting my level 1 bond skills, do we have to assume that in this case the “interest rate” is of similar maturity on the yield curve to the bond is question? i.e. if the bond has a five year term and coupon of 4%, are we only concerned with 5 year rates on the yield curve increaing or decreasing above the coupon rate.

first time posters are encouraged to use AF Search function before they post !

I’m not a first time poster and I did try to use the AF search, but couldn’t find a specific answer, so i’m hoping to still get a response…

Just assume for argument that the curve is shifting up or down in parallel , Don’t get hung up on fine details to do with curve twists , etc. Just go with the flow of the lesson instead of worrying endlessly