(MONEY Magazine) – How does a 25% yield on 30-day New Zealand bank bills grab you? Or 14.3% on a three-year Australian government bond? To be sure, those are extreme examples of risky recent returns in foreign bonds and money-market securities. But you don't really need Crocodile Dundee to protect you when you seek high yields overseas. It's an underpublicized fact that American investors could have done better owning bonds of countries other than the U.S. in all but two of the past 12 years. High yields aren't the only siren beckoning you to other countries' bonds. Swift changes in currency values and interest rates can lift your total return if the changes go in the right direction -- or submerge you if they don't. During the first three months of 1987, for example, the British pound climbed 8.2% against the dollar and interest rates slid lower in the United Kingdom, with the result that a 10-year British government bond returned a total of 20% to an American bondholder, compared with 0.2% from a similar U.S. Treasury issue. When you venture abroad, however, two major problems confront you: painfully high transaction costs and the global headache of trying to guess correctly which countries' bonds to buy at which times. Accurately predicting international currency fluctuations and interest-rate shifts is difficult for those who don't devote their workdays to the task. And negotiating reasonable brokerage charges is beyond most people's means. Indeed, you may have trouble getting a brokerage or bank to handle your transactions at all unless you can flash a bankroll of at least $50,000 to invest. What most people need is a professional money manager at reasonable cost. Enter the foreign bond mutual funds -- and entering they are in rapidly growing numbers, from only one six years ago to a dozen today. But don't throw in your lot with even a foreign bond professional unless you understand the risks involved. Foremost are currency shifts. To illustrate, suppose you buy a one-year British government note with a face value of (pounds)10,000 and a 10% interest rate. Ignoring commissions, if the exchange rate is $1.50 to the pound, the note will cost you $15,000. After a year, you will get back your (pounds)10,000 plus (pounds)1,000 interest. But suppose the pound's value has declined to $1.20. Then your (pounds)11,000 will be worth only $13,200, which is 12% less than you invested. On the other hand, if the pound has increased 20% against the dollar, your (pounds)11,000 will convert to $19,800, a 32% return. In early April, yields around the world ranged from the 25% on New Zealand money-market securities to 3.5% on Japanese short-term notes, with three-month U.S. Treasury bills near the low end at 5.5%. The reasons for the disparities show how the markets work. New Zealand's short-term rates are so high mainly because the government is trying to cut inflation, recently 12%, with a tight monetary policy. As Americans learned in 1981, a choked-off money supply usually leads to a recession, which squashes interest rates. The prospect of those events in New Zealand has caused long-term bonds to yield less than short-term notes. For example, three-year government bonds were recently paying 18.5%, vs. 16.3% for 10-year issues. Economic pessimism and high inflation also prevail in Australia, where rates are averaging four percentage points lower than in New Zealand but are still high relative to rates in other countries. If inflation abates, however, Australian yields will come down. Then bond prices, which always go in the opposite direction from interest rates, will climb. Japan, by contrast, is contending with deflation. Because prices there have been falling slightly, the 4.5% yields on its 10-year government bonds are more attractive to Japanese investors in real terms than are New Zealand's 16.3%. Even though the Japanese economy appears to be slowing down, most analysts agree that its huge trade surplus will keep the yen stronger than most other currencies. In West Germany -- another country with declining prices, a stout trade surplus and a rising currency against the U.S. dollar -- yields on 10-year government bonds were recently only 5.8%. Comparable U.S. Treasury bonds were paying 7.5%. But if the yen or the Deutsche mark keeps rising against the dollar, American owners of Japanese or West German bonds could fare better than in Treasuries. A swiftly growing universe of mutual funds can get you into the international action. Just this year, several fund sponsors and brokerage houses, including Fidelity, E.F. Hutton, Kleinwort Benson and Paine Webber, have opened foreign bond funds or unit trusts, with more to follow. Only three open-end funds have been around long enough to compile any sort of record. By far the oldest is Massachusetts Financial International Trust-Bond Portfolio (7.25% load; $250 minimum investment; 800-343-2829, 617-423-3500 in Massachusetts). In six years of operation, Mass. Financial has had an average annual total return of 18%; over the past 12 months, it returned an elegant 25.9%. Most of those returns came from capital gains, however; the fund yields only about 6%. To minimize risk in pursuit of gains, fund manager Leslie Nanberg buys only government-backed issues. His largest holding -- 35% of his portfolio -- is 10-year West German bonds. Nanberg expects a double dose of appreciation: from falling interest rates in a slowing German economy and a further ascent of the Deutsche mark against the dollar.

For a cautious fling in the New Zealand money market, you can try the new T. Rowe Price International Bond Fund (no load; $1,000 minimum; 800-638-5660, 301-547-2308 in Maryland). Since its debut last September, it has provided an annualized total return of 22.4%. Among manager Edward Taber's largest holdings are New Zealand money-market notes and five-year Canadian government bonds yielding 9.6%. Canadian currency and interest rates should remain stable, Taber believes, protecting the bonds from capital losses. Or consider the Merrill Lynch Retirement Global Bond Fund (no load; $1,000 minimum). It has performed at an annualized rate of 23.5% in its first five months. In early April, however, manager David Walter retreated into Japanese Treasury bills yielding just over 4% to protect some of his capital. More to the taste of conservative investors is a new low-load fund called International Cash Portfolios-Eurocash, which invests only in foreign and U.S. money-market certificates and was recently yielding about 5%. Despite its name, Eurocash does not confine itself to the U.S. and Europe. By remaining exclusively in short-term notes, however, the fund should be less prone than bond funds to price fluctuations caused by currency or interest-rate shifts. It is managed in London, but you can invest in it by calling the U.S. distributor, Donaldson Lufkin & Jenrette (1.25% load; $2,500 minimum; 800-232-3310). Two new closed-end funds -- bought and sold on stock exchanges -- can put you in foreign money markets or bonds. Global Yield Fund (recently traded on the New York Stock Exchange at $9.37; yielding 11.5%) owns foreign and U.S. money-market securities. First Australia Prime Income Fund (American Stock Exchange, $8.50, yielding 6.7%) invests in Australian, New Zealand and U.S. debt instruments. For individual investors who want to grapple with worldwide variables and can afford high transaction costs, two alternatives available through U.S. brokers may make sense. One is debt issued by American corporations in foreign currencies. Such securities offer you the advantage of receiving your interest -- and eventually your principal -- in dollars instead of the currency in which the bond is denominated. That means you don't have to pay your bank or / broker to convert foreign checks you receive from overseas issuers. A two-year Eastman Kodak bond in New Zealand dollars is yielding 18%. Says Jeffrey Diehl, a foreign bond expert with First Boston, a major investment banker: ''From the standpoint of interest-rate and currency considerations, these bonds and foreign securities are virtually the same game. It's simply more practical to buy bonds that U.S. companies issue in foreign currencies, since American banks accept deposits only in dollars.'' The other bonds with special appeal are those denominated in European currency units, or ECUs. The ECU is essentially a mixture of European currencies weighted according to the predominance of each currency in trade and designed to simplify transactions within the European Common Market. Thus with ECU bonds, you can diversify in an assortment of currencies without having to pay for a bundle of bonds from different countries. Bonds issued in ECUs by companies around the world are currently paying about 1.5 percentage points more than West German issues. For example, Federal Home Loan Bank's 10- year ECU bonds were recently yielding 7.8%.