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By the way, the best way to get detailed information on any mutual fund is by signing up for a free Morningstar account. You can find all the statistics mentioned below plus dozens more at Morningstar.

Attributes Of A High-Performing Bond Mutual Fund

• Low Expenses – Since bonds have lower expected returns than stocks, high expenses cut even deeper into the returns of bond funds than stock funds.  It’s doubly-important to keep a lid on expenses here.
• Index Funds Rule - Indexing works just as well with bonds as with stocks.  Better, perhaps, because of the even greater importance of low expenses in the bond world.  Just like their stock counterparts, most actively-managed bond mutual funds fail to beat their relevant index.
• Diversified – It goes without saying that good bond funds are usually broadly diversified, owning hundreds if not thousands of bonds across multiple durations and market segments.

Bond-Specific Attributes

• Average Duration – Duration is a measure of a bond fund’s sensitivity to changes in interest rates.  The lower the duration, the less volatile the fund will likely be.  An average duration of 4 means that particular fund’s Net Asset Value (NAV) would be expected to drop 4% for every 1% rise in interest rates (and vice versa).  As a point of reference, Vanguard’s Total Bond Market Index Fund (VBMFX) has an average duration of 4.3 years, meaning it will fluctuate 4.3% for every 1% change in interest rates.
• Yield To Maturity – The yield to maturity is simply the current interest rate a bond fund is paying.  Assuming interest rates remain steady, yield to maturity is also the expected annual return of the portfolio.
• Average Maturity – All else being equal, the nearer a bond’s maturity the lower its interest rate and the less volatile it will be.  Of particular importance is the fact that long-term bonds (10 years or more) tend to be very vulnerable to inflation and usually suffer poor returns during inflationary periods.
• Credit Quality – All else equal, higher-quality investment grade bonds tend to pay slightly lower interest rates than lower-rated junk bonds, but also tend to have a much lower default rate.  Junk bonds, on the other hand, tend to pay higher interest rates to compensate for the higher risk of default.  There are no guarantees going forward, but historically junk bonds have not yielded high enough returns to compensate investors for the additional risk they’ve had to take on to own them.

The Bond Style Box

Looking up a fund’s bond style box on Morningstaris a quick and dirty way to make a quick assessment of all the above factors.  The style box is simply a 9×9 grid comparing maturity and credit quality.  The box on the grid a bond mutual fund belongs to will explain 95% of its future performance characteristics. Here’s an example of the bond style box you would see for a long-term corporate bond fund.

Avg. Weighted Maturity
Short	Med	Long
			Treasury/ Agency	Quality
			Inv.-Grade Corp
			Below Inv.-Grade

Avg. Weighted Maturity
Short	Med	Long
			Treasury/ Agency	Quality
			Inv.-Grade Corp
			Below Inv.-Grade

The above fund, having a short maturity and very high credit quality, likely has a yield to maturity on the low end of the spectrum; however, it is also probably a good bit less volatile than funds in any other the other 8 style boxes.  Again, visiting Morningstar is the quickest and easiest way to find a bond fund’s style box.

For a much more in-depth look at what bonds are an exactly how they work, I recommend The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More byAnnette Thau.