Booyah Breakdown: Bonding With Bonds, 2

"The U.S. is seen as a safe haven so the world looks to our Treasury market as a safe place to invest," says Mesinger. Now the predominant buyers of our Treasuries are the central banks of overseas powerhouses like Japan, China and Europe.

The demand for our Treasury market is twofold. First, we still have some of the highest interest rates in the world. Second, the U.S. dollar is cheap in other nations. (See this previous column for more on how the dollar is valued overseas.)

As an example, let's fly to France (can we, please?). Since the dollar is so cheap, Parisians can sell their euros over here and get more dollars. Let's just assume they have 1,000 euros. They'll end up with about $1,349. They can then take that $1,349 and invest it in our treasury market and, in turn, they've made a fair amount of very safe money.

Since lots of overseas investors are making that safe investment these days, the interest rates stay strong and demand remains up.

Once the interest rate on Treasuries is established, it can be used as a proxy for every other bond out there, says Mesinger.

Other Bond Players

Now let's talk about investment-grade corporate and high-yield bonds.

Investment-grade corporate bonds are issued by fundamentally strong companies for the same reasons the government offers Treasuries. Companies need capital for projects, expansion, etc., so they offer bonds in an attempt to raise some money.