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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), 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
Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

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