What is the concept behind Sell convexity

What is the concept behind Sell convexity? i can not understand the Sell convexity fixed income stratergy?

More convexity is better than less; you’re selling something valuable.

do we sell convexity where situation like " High convexity with Low yield" ?

Hi. Convexity makes value to increase more when rates go down and to decline less when rates go up. If you are pretty sure interest rate volatility is going to increase then buy convexity. You sell it when your view is interest rate volatility going down.

Hope it’s helpful

You can also sell convexity if rates are predicted to be stable, nothing gonna to happen so sell it to increase return to the portfolio of FI securities.

On point SiEfEi, well explained.

Not necessarily true. If I am a portfolio manager, and rates are expected to be stable, why would I want to pay more money for a convexity that is least likely to add value to my portfolio? as long as the interest rate is stable, there is no incentive for me as a manager to buy convexity, so i’ll remain neutral.

I think I understand it now. Selling convexity makes sense when you expect volatility to be less than what the market is pricing it at because the buyer would be overpaying for it and you can get back the more guaranteed yield on the bond that bonds with higher convexity miss out on. Another reason it might make sense is if you want to reduce/minimize the convexity in a LDI strategy so the dispersions around the horizon date are minimized.

sell convexity, gain yield

buy convexity, lose yield