Fluctuations in value and thus yields of predominantly conservative bond funds depend primarily on the development and amount of interest rates.
… increasing interest rates?
In the short term, increase of rates in bond funds will have negative impacts, because the information can decrease prices of bonds held in the fund portfolio; in the long term such a situation is positive, because the fund is invested in the portfolio of bonds with higher yields.
… decreasing interest rates?
In the short term, decrease of rates in bond funds will have positive impacts, because in its portfolio the fund holds bonds with a coupon yield that is higher than the one achieved with newly issued bonds, which increases their value. In the long term, such a situation is negative, because the portfolio of the bond fund is revalued flexibly into market yields and prices. The bond fund yield then reflects the level of current (lower) market interest rates.