Measurement of Sovereign Bond's Sensitivity an Application of Convexity Model

Purpose- The study aims to investigate the impact of convexity on sovereign bond (G-Sec) by analyzing sensitivity of price to change in yield with varying maturity period. Due to the sensitive volatility during the crisis period, investors had to adjust their investment strategies in light of difficult preconditions. The crisis era is noteworthy not because it was a financial crisis but rather because of the large yield revisions it brought about. These circumstances implied higher earnings associated with increased exposure to convexity. This research work will be beneficial for the investors who are seeing changes in market yields on sovereign bond may take the advantage of this convex methodology. Design/Methodology - The present study is based on sovereign bond and it employs convexity model which is a key factor in this assessment of sovereign bond’s sensitivity. The various maturity period of sovereign bond (G-Sec) series from 2024 to 2073 were taken into consideration for this empirical analysis. The study also uses regression and correlations to illuminate the relations among variables. Findings - The findings of this study indicates that the prices move more in response to changes in yields when the convexity measure is higher. Bond that has a highest maturity level has a larger convexity and a higher price sensitivity. Thus, it can be said that price sensitivity increases with duration. Originality - This study is one of the few research published till date which will add substantial values in sovereign bond and ought to significantly advance the concept of previously available models.