First, you should understand what you own. Eric Jacobson, who reviewed the fund for Morningstar, says you should be cautious using star ratings for bond funds. So many junk funds saw their star ratings tumble. But you've got a good fund, Jacobson says. It ranks four stars out of a possible five.
Bonds are long-term IOUs issued by corporations and the government.
Many years ago, bond certificates came with paper strips along the side, called coupons. Investors would clip off the coupon and send it to the issuer to get their interest payments. Zero-coupon bonds, as you might suspect, have no coupons. Instead, you buy the bond at a discount from its face value, much like a savings bond. Bond prices rise when interest rates fall, and interest rates generally fall when the economy slows.