Skip to main content
Add funds
Fund 1
Fund 2
Fund 3
Fund 4
Confirm your location and role
location select
language select
Municipal Bonds

Understanding convexity

Highway with time-lapse of cars

Convexity is a mathematical concept used to compare a bond’s upside price potential with its downside risk. A bond has positive convexity when the price increase resulting from a given decline in interest rates is greater than the price decrease that would result from an equivalent rise in rates. As a general rule, noncallable bonds have positive convexity, while many bonds that can be redeemed prior to maturity have negative convexity.

Why do we start with duration?

To understand convexity, we must first understand duration, which is a metric used to estimate how much the price of a bond will change in response to a change in its yield. Modified duration is a particular version of duration, which, when multiplied by the change in yield, approximates the expected percentage change in price.

However, using duration to estimate price changes assumes a linear relationship between the change in yield and the change in price. In other words, the percentage change in price from an increase in yield is presumed to be the same as the change in price from a decrease in yield.

Download the full article

Related articles
The case for private markets: three things to know
In this uncertain market environment, investors struggle to enhance returns and reduce risk.
Decarbonising the energy infrastructure ecosystem
Since launching Nuveen’s North American energy infrastructure credit platform in November 2022, Don Dimitrievich spoke with PDI about the compelling opportunity for infrastructure debt lending in North America, and why he believes managers who understand the entire energy infrastructure ecosystem, and have experience investing through credit cycles, will be best positioned to deliver the most attractive risk-adjusted returns for investors.
Sustainable supply chain opportunities take center stage
The Inflation Reduction Act is supercharging a resurgence in US manufacturing by supporting supply chain industries that facilitate decarbonization. Where can infrastructure debt play a role in financing the sustainable energy supply chain? Don Dimitrievich, SMD and Portfolio Manager for Nuveen Energy Infrastructure Credit, discusses this compelling investment opportunity in Preqin’s 2023 Global Infrastructure report.

You are about to access our website for visitors outside of the United States.

You are about to access our website for Nuveen Global Cities REIT

You are leaving the Nuveen website.

You are leaving the Nuveen website and going to the website of the MI 529 Advisor Plan, distributed by Nuveen Securities, LLC.

The Nuveen website for institutional investors is available for you.

You are about to access our website for visitors outside of the United States.

You are about to access our website for Nuveen Churchill Private Capital Income Fund (“NC - PCAP”)

Contact us
Contact us
Back to Top