the second derivative. Convexity also gives an idea of the spread of future cashflows. (Just as the duration gives the discounted mean term, so convexity can be used to calculate the discounted standard deviation, say, of return.) Note that convexity can be positive or negative. A bond with positive convexity will not have any call features - i.e. the issuer must redeem the bond at maturity - which means that as rates fall, both its duration and price will rise. On the other hand, a bond with call features - i.e. where the issuer can redeem the bond early - is deemed to have negative convexity as rates approach the option strike, which is to say its duration will fall as rates fall, and hence its price will rise less quickly. This is because the issuer can redeem the old bond at a high coupon and re-issue a new bond at a lower rate, thus providing the issuer with valuable optionality. Similar to the above, in these cases, it may be more correct to calculate an effective convexity. Mortgage-backed securities (pass-through mortgage principal prepayments) with US-style 15- or 30-year fixed-rate mortgages as collateral are examples of callable bonds. Sherman ratio The "Sherman ratio" is the yield offered per unit of bond duration, named after DoubleLine Capital's chief investment officer, Jeffrey Sherman. It has been called the "Bond Market's Scariest Gauge", and hit an all-time low of 0.1968 for the US Corporate Bond Index. The ratio is simply the yield offered (as a percentage), divided by the bond duration (in years). See also Bond valuation Day count convention Immunization (finance) List of finance topics Stock duration Notes References Further reading . The standard reference for conventions applicable to US securities. External links Risk Encyclopedia for a good explanation on the multiple definitions of duration and their origins. Step-by-step video tutorial Investopedia’s duration explanation Fixed income analysis Bond valuation