The great bull market of the 1990s created a nation of investors geared toward the stock market. Even before the bear market of 2000 and 2001 and the financial crisis of 2008-2009, financial planners have recommended bond investments for the well-diversified portfolio. The bond market is known as the fixed income market because once an investor buys a bond, they know the future stream of interest payments coming to them for the life of that security (even if the bond can appreciate or depreciate in value).

Interest rates play a major role in determining the level of business activity. A rising interest rate environment is generally negative on the economy. When interest rates rise, the cost of borrowing increases for consumers and businesses. This reduces demand for goods and services. Conversely when interest rates fall, borrowing costs are reduced and demand for goods and services increases.

Bond investors would like to earn high yields on their bonds. However, a rising interest rate environment is not good for bondholders, who will find that the value of their bonds depreciates as rates head higher. This happens because their old bonds with a fixed income stream are worth less than new bonds with a higher earnings stream. Bond holders are quite happy in a falling interest rate environment because the current holdings appreciate in value when the new bonds coming to market will have lower interest earnings.