Definition of Negative convexity

Negative convexity

A bond characteristic such that the price appreciation will be less than the price
depreciation for a large change in yield of a given number of basis points.

Effective convexity

The convexity of a bond calculated with cash flows that change with yields.

Negative amortization

A loan repayment schedule in which the outstanding principal balance of the loan
increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount
required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later.

Negative carry

Related: net financing cost

Negative covenant

A bond covenant that limits or prohibits altogether certain actions unless the bondholders agree.

Negative duration

A situation in which the price of the MBS moves in the same direction as interest rates.

Negative pledge clause

A bond covenant that requires the borrower to grant lenders a lien equivalent to any
liens that may be granted in the future to any other currently unsecured lenders.

Positive convexity

property of option-free bonds whereby the price appreciation for a large upward change
in interest rates will be greater (in absolute terms) than the price depreciation for the same downward change
in interest rates.

negative cash flow

The cash flow from the operating activities of a business
can be negative, which means that its cash balance decreased from
its sales and expense activities during the period. When a business is
operating at a loss instead of making a profit, its cash outflows for
expenses very likely may be more than its cash inflow from sales. Even
when a business makes a profit for the period, its cash inflow from sales
could be considerably less than the sales revenue recorded for the
period, thus causing a negative cash flow for the period. Caution: This
term also is used for certain types of investments in which the net cash
flow from all sources and uses is negative. For example, investors in
rental real estate properties often use the term to mean that the cash
inflow from rental income is less than all cash outflows during the
period, including payments on the mortgage loan on the property.

Convexity

A measure of the rate of change in duration; measured in time.
The greater the rate of change, the more the duration changes as yield changes.

Negative goodwill

A term used to describe a situation in which a business combination
results in the fair market value of all assets purchased being more than the purchase
price.

Negative Loan Covenants

Loan covenants designed to limit a corporate borrower's behavior
in favor of the lender.

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