bond market index

If you're an income investor, you probably feel like you're in one of those nightmares where you're trying to run like hell - but aren't getting anywhere.

Martin Hutchinson and I were talking about this predicament last week.

As editor of the Permanent Wealth Investor, Martin is our income guru here at Money Map Press. His advice on how to thrive in this lousy-income environment was so good that I had to pass it along to you - along with one of his favorite income plays.

Traditionally, bonds - especially U.S. Treasury bonds - are the favored holding of income-seekers. But bonds face two big challenges right now - and we have the U.S. Federal Reserve to thank for both of them.

First, thanks to the ultra-low-interest-rate policies of the nation's central bank, Treasury bonds are yielding next to nothing. When I looked Friday afternoon, the 10-year was yielding 1.94% and the 30-year 3.12%.

Now, according to the latest federal figures, the U.S. consumer price index (CPI) fell to 2.7% in March from 2.9% in February. The CPI is the "official" gauge of U.S. inflation. But as we explained back on March 2, this is a bogus number.

The American Institute for Economic Research (AIER) says everyday prices - the ones that matter most to working Americans - are up a good 8% over the past year.

So income investors who stick to traditional tactics are actually losing ground to inflation. And you absolutely don't want to outlive your money.

If that were the only problem, it would be pretty bad. But there's a second challenge - and it's a doozy.

You see, the central bank's Federal Funds rate - the benchmark that helps determine most borrowing rates that American consumers and businesses pay - remains down near zero. And while no one can predict with certainty when rates will change, there is one thing you can bank on: When rates do change, they can only go up.

And since bond prices move opposite interest rates (bond prices fall when rates rise, and vice versa), those fixed-income securities will take a beating when rates increase.

And so will the investors who hold them.