conversation: User (Ihaveajoke): "I've got some money in a bond fund and it's done horribly over the last year.  I understand that prices fall when interest rises, but shouldn't I still be making interest on the bonds?  How can there be negative growth over a year?  Where is the interest going?"
  Self: "The performance of a bond fund takes changes in the NAV as well as distributions into account.\n\nThis means that if the bond fund you are invested in has a negative return YTD, the decline in the NAV as a result of interest rate increases has not been fully offset by the amount of interest being paid by the fund.\n\nDuration affects the bond fund's sensitivity to interest rates. Bond funds with longer durations are more sensitive to interest rate movements. So, when interest rates increase, a bond fund with a longer duration will decline more than a bond fund with a shorter duration, theoretically *(other factors affect the bond fund which may cause it to drop less or more than its duration)*. This is why in times of interest rate increases, people tend to move their bond portfolios to have a shorter duration.\n\nAnother strategy is to include floating rate bonds and preferred shares in your portfolio during a rate rising environment."
  