Booyah Breakdown: Bonding With Bonds, 2

Editor's Note: This is the second of a three-part Booyah Breakdown series on bonds.

Welcome back to the Booyah Breakdown's bond school.

We started our matriculation last week by defining some bond basics: face value, interest rate, yield, etc.

Today, we're going to discuss how bonds and their interest rates change in the marketplace.

And next week, our graduation lesson will be a scrutiny of the infamous inverted yield curve, which all the pundits are talking about these days.

So pour yourself a cup of coffee and let's bond (sorry, couldn't resist).

Start at the Treasury

"Everything revolves around the government bond market," says Mark Mesinger, VP of Fixed Income Trading at Charles Schwab (SCHW Quote). The whole world relies on the U.S. Treasury market as a basis for spreading other debt."

So let's understand the Treasury market. The U.S. government has trillions of dollars in outstanding debt that has to be paid back. Uncle Sam sells Treasury bonds, notes or bills to raise some money to pay back this debt to other countries.

In the past, Treasuries were mostly purchased here at home by all the big investment banking firms, which ended up controlling the supply and demand.

But these days, the global market has control. With our interest rates creeping up (can't forget those 17 interest rate hikes) over the last few years, its no surprise, the rest of the world wants to play here.