Interest rates are just about as low as they can go. CD rates are below 2 percent. Treasuries are not paying that well right now at all.

Long and intermediate term bond fund values will fall as interest rates rise. Long term bonds are ok if you hold them to maturity but if interest rates hit 8 percent you will not be happy holding a 3.5 percent bond.

If you are willing to take more risk some of the following might be right be for you.

High yield bonds funds. These types of bond funds tend to do very well as the economy improve. I know that the unemployment continues to rise but there are signs of an improving economy. At the depths of the economic downturn high yield bond funds took a hit as always is the case. During times of improving economic conditions they tend to do very well.

Some of the high yield bond funds I recommend are:

Janus High Yield symbol JAHYX. Year to date from Jan 1, 2009 to September 30, 2009 this fund was up 33.74%.

Artio Global High Income symbol BJBHX. Year to date from Jan 1, 2009 to September 30, 2009 this fund was up 47.10%

In 2008 Janus lost 19%, Artio lost 24%. You must ask yourself are you willing to take that kind of risk.

Short term bond funds: In a rising interest rate environment you want to keep your duration on your bonds as short as possible. My recommendations on these funds are as follows:

Janus Short-Term Bond fund symbol JASBX. This fund has never lost money in a given year. Year to date from Jan 1, 2009 to September 30, 2009 this fund was up 7.37%

PIMCO Low Duration bond symbol PLDDX. This fund has lost 1.58 percent in 2008 its worst year. Year to date from Jan 1, 2009 to September 30, 2009 this fund was up 11.44%

Some closed end funds get into international bonds and have been quite effective.

I like the following funds.

Aberdeen Asia-Pacific Income Fund symbol FAX. Year to date from Jan 1, 2009 to September 30, 2009 this fund was up 47.58%.

PIMCO Strategic Global Government Fund, Fund symbol RCS. Year to date from Jan 1, 2009 to September 30, 2009 this fund was up 25.76%.

Finally I want to mention an arbitrage fund, the Gabelli ABC fund, fund symbol GABCX. This fund lost 2.63% in 2008. Year to date from Jan 1, 2009 to September 30, 2009 this fund was up 4.76%. This fund has produced returns of nearly 12% in its best year and has averaged nearly 7% since its inception in 1993.

Always keep a good balance in your asset allocation. I do not recommend any of the investments above for more than 25% of your total portfolio savings.