Flight to Safety a Boost to Bond Funds

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Despite the recent turmoil in the U.S. economy, investors both globally and domestically still have a soft spot for the U.S. dollar and U.S. government debt. Despite bad lending practices and disgraceful conduct of some Wall Street bankers as well as incompetent government officials and politicians, the U.S. still manages to inspire confidence in its future.

U.S. government debt can still attract investors looking for safety during these volatile times, a trend evidenced by the best-performing bond funds in the third quarter, many of which invest predominantly in government securities. Their performance shows a basic confidence that our tax dollars will pay for it all, balancing any risk.

The top-performing fund during the quarter was the ProFunds Rising U.S. Dollar Fund (RDPIX Quote - Cramer on RDPIX - Stock Picks), which has profited from the recent rally in the U.S. dollar. With European and Asian economies now experiencing their own banking crises and slowing economies, the risk playing field has changed in favor of the U.S., and one way to play the greenback is to hold U.S. government debt.

The prices on these government securities are high by any measure, but the current environment is so extreme and uncertainty so pronounced that safety is overruling any valuation criteria. This paradigm may continue for some time. Now, factor in the rate cut from the Federal Reserve and these prices may go higher (and as a result, yields fall), but there is the counter argument that the Treasury Department's $700 billion bailout plan could cause prices to drop -- so investors interested in Treasuries should be willing and able to take on price volatility in the near and intermediate term.

Top-Performing Bond Funds in the Third Quarter
Ticker	Name	Objective	3-Month Return	1-Month Return
RDPIX	ProFunds Rising US Dollar-IN	Index Fund-Debt	8.99	2.54
VEDIX	Vanguard Extend Dur Tre-INS+	Government/Agency-not Maturity dependent	5.47	2.95
GVPIX	ProFunds US Government PL-IN	Government/Agency-not Maturity dependent	4.75	2.18
RYGBX	Rydex Series Govt Long BD-IN	Government/Agency-not Maturity dependent	4.49	1.56
WHOSX	Wasatch Hoisington US Treas	Government/Agency-not Maturity dependent	4.48	1.73
PEDIX	PIMCO Extended Duration-INST	Government/Corporate	3.98	0.83
EDRAX	SEI Inst Inv Extended Dura-A	Government/Corporate	3.41	0.1
GREZX	Guidestone Real Estate SEC-GS4	Sector Fund-Debt	3.37	-1
NIMPX	Nuveen Intl INC MGD Accounts	International Debt	3.25	-1.63
FLBAX	Fidelity Spart L/T Treas-FA	Index Fund-Debt	2.61	0.29
DFFGX	DFA Five-Year Government	Govt/Agency-Short/Intermed	2.5	0.81
DRGBX	Dreyfus US Treas Long Term	Govt/Agency-Long Term	2.47	-0.06
SCUSX	STI Classic US Govt SEC-A	Govt/Agency-Intermediate/Long	2.42	0.8
BTIAX	Northern Ins US Tres Index-A	Government/Agency-not Maturity dependent	2.33	0.73
CPFAX	Comstock Strategy Fund-A	Government/Corporate	2.23	7.51
BTFTX	Amer Cent Trgt Mat 2015-INV	Govt/Agency-Target Term	2.15	-0.31
FIBAX	Fidelity Spar Inter TR BD-AD	Index Fund-Debt	2.09	0
IUTIX	Columbia US Treas Index-Z	Index Fund-Debt	2.07	0.36
SGTAX	SunAmerica US Govt Secs-A	Government/Agency-not Maturity dependent	2.06	0.53
PRULX	T Rowe Price US Treas Long	Govt/Agency-Long Term	2.04	0