Glossary of Municipal Securities Terms

CONVEXITY

A measure of the price sensitivity of a fixed income security to changes in interest rates. “Convexity” refers to the shape of the price curve when graphed against theoretical interest rate points. Convexity is influenced by such factors as the coupon ratematurity and any calls that may or may not exist. Prices rise at increasing rates as yields fall and prices decline at decreasing rates as yields rise. Compare: DURATION.

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