YOU do not have to be a financial wizard to get a safe return of more than 7 per cent on your money for decades to come. All you had to do was buy a 30-year US Treasury bond in the last nine months of 1994.

And if you were especially lucky with your timing and bought that bond in early November 1994, you could have got more than 8 per cent interest annually.

There were treasures elsewhere in the investment-grade bond market. Tax-free municipal bonds were paying more than 6 per cent, and corporate bonds carried rates that were even higher.

Those kinds of gems are not available now. While interest rates have risen appreciably, I am not confident that we are experiencing a 30-year peak with bargains galore, as the fortunate bond buyers of 1994 did.

But I do see parallels. After months of horrendous losses, long-term buy-and-hold bond investors can expect relief from disappointing returns in the years ahead.

With short-term Treasury rates being well above 5 per cent, 10-year Treasury bonds sporting yields in the 4.9 per cent range and investment-grade corporate bonds above 6 per cent, fixed-income investments are attractive – certainly compared with the ultra-low rates of a few years ago.

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Along with plenty of caveats, here are further ideas for bond investing.

Some basics

I am a buy-and-hold investor, relying mainly on cheap index funds that track the entire stock and bond markets – an approach that assumes you can afford to ride out market fluctuations for many years.

But this will not work for everybody. Many people do not have horizons of a decade or longer. They may be retirees who cannot tolerate market declines. Or they may be putting away money for a purpose with a defined time span, like a child’s education or the down payment for a home or vehicle.

For these and many other situations, bonds may be appropriate – either through funds or individual securities.

The main bond fund I invest in through my 401(k) tracks the US investment-grade bond universe, as defined by the Bloomberg US Aggregate Bond Index. This kind of fund is common in workplace retirement plans. It has been roughly flat for the past five years but has taken losses of more than 5 per cent, annualised, over the past three years. Even so, I am holding on to it.

It entails risk. It could incur additional losses if interest rates rise a lot more. That is acceptable to me because I am in it for the long haul. But you may not want to endure market declines.

So consider safer alternatives.

Reducing risks

At current rates, money-market funds are a good option. Yields on the 100 biggest money-market funds tracked by Crane Data average 5.17 per cent, up from nearly zero in 2020 and just 0.6 per cent in June 2022.

Fees matter, especially for fixed-income investments, where returns are usually in single digits. Vanguard’s fees are low, and one of its money-market funds yields 5.3 per cent.

Money-market funds are not insured by the government, but they hold government securities, especially Treasuries. Finance textbooks describe Treasuries as risk-free assets, although I cannot make that claim with a straight face. The US government’s credit ratings are no longer pristine. Already this year, the government has come close to a shutdown or, even worse, a breach of its debt ceiling.

Similarly, if you shop around, bank certificates of deposit and high-yield savings accounts can be good choices, with guarantees that are as safe as the credit of the US government.

Treasury securities

Another approach is buying Treasuries that you hold until they mature. This past week, two-year Treasuries reached their highest yield since 2006: 5.2 per cent. The yield could rise further – it could also fall, no predictions here – but this is already an attractive payout.

Trading Treasuries can be hazardous: You can incur losses if interest rates rise. So if you are risk-averse, stick with short-term Treasuries or with low-cost, diversified short-term bond funds, which generally hold securities of one to three-year durations.

You can make Treasury purchases through a broker – watch out for fees – or without a middleman on Treasury Direct. The site is not slick, but it charges no fees. There, you can obtain savings bonds, both the classic EE bonds and the inflation-adjusted I bonds, as well as an array of inflation-adjusted and nominal Treasuries.

Read the fine print, though. I found EE savings bonds intriguing. While they offer an interest rate of just 2.5 per cent, compared with 4.3 per cent for I bonds, there is a sweetener. Hold on to EE bonds for 20 years and the government guarantees that you will double your money. This amounts to an effective, unadvertised interest rate of about 3.6 per cent, but only if you keep the bonds that long. While I bond yields are now higher, they reset every six months.

Then there are standard Treasury securities, ranging from one-month bills to 30-year bonds, offering higher yields than investors have received in years.

Lessons from 1994

It may be tempting to buy a 20-year Treasury with a yield of more than 5.2 per cent with the intention of holding it to maturity.

Whether that is a brilliant purchase, or one you might regret in a few years because interest rates have moved much higher, is a question I cannot answer.

But if it is of any solace, people in 1994 did not know where interest rates were heading either. Most articles about bonds then were overwhelmingly negative. A Painful Year of Higher Rates was the headline of a New York Times article.

In 1995, the Federal Reserve engineered a rare “soft landing” for the economy, quelling inflation without setting off a recession, and cutting interest rates. A soft landing is the Fed’s goal this time around, too. But of course we do not know if it will get there.

What is inescapably true, however, is that for investors, interest rates are much more appealing than they were a few years ago. There might be better opportunities ahead, but this is already a good time to buy. NYTIMES