Such bonds are known to have negative convexity. Negative convexity also arises when bonds are callable, meaning that the issuer can pay the bonds of when rates are low enough to justify such an...

Such bonds are known to have negative convexity. Negative convexity also arises when bonds are callable, meaning that the issuer can pay the bonds of when rates are low enough to justify such an action. Therefore, the bond’s price increases, but not as much as if the bond were not callable. Such a price compression is also known as a negatively convex price-yield curve.