Bass Convention

The Bass Convention is a finance rule used in bond markets to determine how interest rate changes impact bond prices, especially for bonds with long-term maturities. When interest rates move, bond prices don't change equally across all maturities; the convention assumes that short-term interest rates move in step with long-term rates. This helps investors and analysts better estimate and compare the expected price changes of bonds when interest rates fluctuate. Essentially, the Bass Convention provides a standardized way to model and understand the relationship between interest rate shifts and bond price movements across different maturities.