I can't emphasize enough the role of a well functioning bond (debt/credit) market in a prosperous capital system. While not getting the flashy treatment of the media as equity (stock) does, the bond market is several times larger than the equity market. In the U.S. this year alone, close to a trillion in new bond, just for the investment grade market, will be issued. A company may do one IPO in their lifetime, but they will tap the debt markets using bonds over and over again, perhaps as often as once or twice a year. So, needless to say, the credit and bond markets manage the flow of the largest quantity of capital in the world, employ more people and in some form will be around for a long period of time, as companies access debt to expand and continue operations.

The big picture is simple, a bond is a contract where you hand over cash to the company (a loan) where in most cases they agree to pay interest every six months, followed by a return on the initial loan at the end of the term. The bond market has evolved into a mix of different products with different features, but the basic concept of a loan in return for interest is still the same.

Now, since the Federal Reserve initiated the aggressive mix of monetary policies few years back, commonly referred to as QE to jumpstart the U.S. economy, interest rates have been driven lower (more money pumped into the system > lower interest rates > more people and corporations borrow > more economic activity). Lower interest rates lead to higher prices for bonds and higher return for bond investors. Consequently, for the last few years bond investors have benefited from significant returns.

Explain what the best bond investment strategy is going forward, considering the recent large macro event, which is the end of QE and an expected rise in interest rates. Keep in mind that you can't simply say I would invest in bonds or I will not invest in bonds. Similar to many bond fund managers, just like myself, you have no option. You have been given billions of dollars in money from investors to invest in the bond market and you can't sit idle, you must go out there and invest it in the bond market. But at the same time, you must be aware of the fundamental trends in the bond market and not blindly invest, but have an appropriate strategy that is customized to the anticipated trends. What I'm looking for here is not much of an individual bond picks, "I'm going to invest in IBM bond or I will invest in Amazon bond" but what bond features should you be looking for that best fits the current bond environment. The big clue here is "duration", so get to know that concept from your book and any other research material.

Start doing some research on the current state of the bond markets and identify trends. Again, focus on the big picture items such as QE, duration and the big unknown, the continuation of the QE effort in Europe. Research shouldn't be any issue, as the Fed, Bank of Japan and European Central Banks are all in the headlines. Based on what you find, tell me what's the bond investment strategy you would develop and what features will you focus on when creating the bond portfolio.