Government bond mutual funds are considered to be the safest class of investments in the bond fund category. These funds generally hold a portfolio of securities issued by the US Treasury and other government agencies which have negligible default risk. As a result, yields from these instruments are typically low along with low levels of associated risk. By holding widely diversified portfolios of these instruments, mutual funds contribute significantly to the safety associated with them.
Below we will share with you the 5 highest yielding Zacks #1 ranked government bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all government bond funds, investors can click here to see the complete list of funds.
| Mutual Fund | Sec 30 Day Yield |
| Lord Abbett Floating Rate A | 5.39% |
| Driehaus Active Income | 3.24% |
| Franklin Real Return A | 2.73% |
| Lord Abbett Short Duration Income A | 2.41% |
| Western Asset Mortgage Backed Security A | 2.18% |
Lord Abbett Floating Rate A (LFRAX) invests a majority of its net assets in senior loans which carry an adjustable or floating rate. A maximum of 20% of its assets are invested in unsecured senior loans. At least 20% is also invested in different types of debt and short term securities. Derivatives attract investment of not more than 10% of its total assets. The government bond mutual fund returned 8.26% over the last one year period.
The government bond mutual fund has expense ratio of 0.81% compared to a category average of 1.15%.
Driehaus Active Income (LCMAX) seeks capital growth and current income. A large share of its assets are invested in domestic floating rate and fixed income securities. Investments can be made in investment grade as well as junk bonds. The government bond mutual fund returned 5.05% over the last one year period.
As of June 2013, this government bond mutual fund held 201 issues, with 3.39% of its total assets invested in FNMA CMO 1.5%.
Franklin Real Return A (FRRAX) invests in purchasing investment grade debt instruments. A maximum of 20% of its assets may be invested in junk bonds. Additionally, a minimum of 25% is also invested in foreign securities which may be denominated in domestic and foreign currencies. The government bond mutual fund returned 1.30% over the last one year period.
The Fund Manager is T. Anthony Coffey and he has managed this government bond fund since 2004.
Lord Abbett Short Duration Income A (LALDX) seeks capital protection along with high income. The fund invests a minimum of 65% of its assets in different kind of investment grade debt securities including the ones which are backed by the U.S. Government or government sponsored securities. The government bond mutual fund returned 3.15% over the last one year period.