30-year bonds are back, but are they good for you?

The U.S. Treasury Department earlier this month auctioned off its first batch of 30-year bonds since 2001, and big money took notice. Pension funds, insurance companies and other long-term institutional investors flocked to buy $14 billion of long-term bonds to help cover their future obligations — to younger workers who won't retire for decades, for example.

But individual investors probably should pass on the opportunity in favor of shorter maturities, at least for now.

With interest rates as crazy as they are today, you can earn as much or more on a two-year Treasury note as on one of those 30-year bonds that debuted Feb. 9. On Friday, a two-year note was paying 4.73 percent while a 30-year yielded 4.53 percent. So the yield curve — the arc that appears if you graph the difference in short- and long-term rates — was not just flat, it was inverted.

That's just the opposite of the norm and means you could earn more staying short than going long. The unusual circumstance could be a harbinger of recession, although economists aren't sure what it means for the economy in its current incarnation.

What it means for individual investors is that you shouldn't tie up your money for long periods if you're not going to get a premium. Most advisers are telling individual investors, especially older ones, to keep their maturities short, from 18 months to 10 years.

With interest rates perking up, and more investors shifting to bonds from stocks as they near retirement, let's review why you might want to own some U.S. Treasury securities and how the ways to buy them have changed.

Treasury securities that can be bought and sold on the open market — "marketable" securities — include "bills," with terms of one year or less; "notes," with terms of from two to 10 years; and "bonds," with terms beyond 10 years. Savings bonds are Treasury securities, too, but they are not marketable.

Because Treasuries are the safest investment on the face of the Earth — the U.S. government has never defaulted on its promise to pay back its lenders — they are popular with investors whose primary goal is preservation of capital. If you hate risk, you should love U.S. Treasuries.

They also offer a small tax bonus: The interest you earn is free from state tax. The effect of that exemption boosts your real return.

You can buy Treasuries directly from the government, without commissions or broker markups. The minimum investment is $1,000. They're also bought and sold on a secondary market, where you'll pay a fee to trade them through a securities broker.

Notes and bonds pay interest every six months, but the interest on bills is accounted for upfront by discounting your purchase price. Another bond, the Treasury Inflation-Protected Security, or TIPS, pays interest while adjusting your principal value every six months to keep pace with inflation.

Buying Treasuries is a snap, once you get the hang of the government's electronic bookkeeping system. (All securities are tracked electronically now; the government hasn't sold paper Treasuries since 1986.) You can choose from two kinds of accounts: Legacy Treasury Direct or the new Treasury Direct.

Legacy is the account for you if you don't have access to a computer. Buyers can use the telephone, including rotary phones, or the mail as well as the computer to buy bonds, notes and bills. You can't buy savings bonds through Legacy, and you can't sell bonds online. You must use a paper form and establish your account by mail, and then you can trade electronically if you wish.

Paper savings bonds still can be purchased at banks or through payroll savings plans, but they will be discontinued eventually, says Steve Meyerhardt, a spokesman for the Bureau of the Public Debt.

To get the account forms or ask questions, call 800-722-2678.

The other kind of account, the new Treasury Direct, is all electronic. You can open your account and buy and sell securities, including savings bonds, online. Online transactions are protected and secure. You can monitor your bonds, change their registrations, watch them grow in value and cash them in, all at one site. It's really slick.

It's also possible to convert your paper bonds to Treasury Direct, something I did two weeks ago. After a trip to the safe-deposit box, I sent off three bundles of Series I bonds, accumulated over several years through a payroll-savings plan, to a place in West Virginia. Within a few days, the paper bonds were converted to electronic bonds and showed up in my account, at face value and at current worth, with all their numbers and registrations intact.

Information about converting paper bonds can be obtained by calling the Office of Investor Services at 304-480-7537, or by clicking on "contacts" and e-mailing Treasury Direct from its Web site, www.treasurydirect.gov or www.savingsbonds.gov.

To try out a transaction (and to take advantage of the current 6.73 percent rate), I bought an I bond online from the same account and paid for it with an electronic link to my local checking account. There were no hitches or glitches.

For my next foray, I may try buying a note at next month's regular two-year note auction. Or I could wait until April's sale of five-year TIPS. A calendar of what the government plans to sell, and when, can be found with loads more information at the Treasury Direct Web site.

You can reinvest easily in securities when auctions come up, and you can leave your money in a government holding account or have it deposited into your bank account.

Still, some people may not want to run their own Treasury show. For them, there are mutual funds made up of government bonds. Or you can find funds that mix Treasuries of varying maturities with corporate and foreign bonds.

Check www.morningstar.com and click on "funds," where you can read Sue Stevens' article "A Little Fuzzy on Bonds?" and search for likely bond-fund candidates.