Portfolio Charts explores how bond convexity can drive strong returns even in low or falling rate environments, challenging the idea that low yields limit upside. Longer-duration bonds, especially 30-year Treasuries, can deliver outsized gains from small rate declines, highlighting an often-overlooked asymmetric return profile.
High Profits at Low Rates : The Benefits of Bond Convexity
Portfolio Charts
Research
16 Pages
Key Takeaways
Asymmetric Price Behavior: A 1% rate drop can generate significantly larger gains than losses from a 1% rise, reinforcing convexity’s upside skew in bond pricing.
Long Duration Advantage: 30-year bonds show materially higher convexity than 5-year bonds, with sensitivity increasing sharply at low starting yields.
Low Rate Opportunity: Even near 0% yields, small declines can still produce meaningful capital gains, contradicting assumptions that bonds lose effectiveness at low rates.
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