There’s no doubt about it, interest rates are rising.

Now, they’re obviously not soaring and their upward journey certainly hasn’t been linear. But at 2.4%, the yield on the benchmark 10-year Treasury bond is substantially above its mid-2012 low of 1.5%. It even spiked briefly to just over 3% at the beginning of the year.

And interest rates will most likely continue trending higher, what with the Federal Reserve set to end its rate-suppressing QE (quantitative easing) program next month. There’s also a good chance of the Fed looking to actively raise interest rates next year in what would be its first rate hike in around eight years.

Most investors have been dreading this eventuality because it’s apt to inflict some near-term pain. Indeed, rate hikes can push down the value of existing bonds because new debt is issued with larger coupons. Rising rates could also trigger a selloff in stocks because of concern about higher borrowing costs for companies, among other things.

Ultimately, though, higher interest rates should spell opportunity — especially for conservative income investors. For years now, they’ve had to be willing to take a lot of extra risk just to earn decent investment income or simply make do with less. So for them, rising rates is good news because it’ll mean better returns on the safer types of income investments they prefer, namely government bonds.

Of course, a rising rate environment poses certain challenges, particularly the drop in existing bond prices I mentioned. This risk is hard to avoid, though, because it’s simply a fact of life. When interest rates rise, bond prices fall.

However, there is a way to mitigate this as rates progressively climb. The key is a type of income-producing security with a coupon that’s tied to interest rates. Because of this feature, prices of these so-called floating-rate notes (FRNs) are less sensitive to interest rate changes.

Mind you, FRNs are available from a number of sources, like government agencies, corporations and foreign banks. But income investors seeking the greatest possible safety should consider U.S. Treasury FRNs.

#-ad_banner-#If you haven’t heard of these, it’s because they’ve only been around since January. They’re the safest kind of FRN, in my opinion, because they’re backed by the U.S. government — arguably still the most creditworthy entity on Earth, despite recent drama surrounding its finances.

A key feature of Treasury FRNs is their duration of just two years, which makes them a great play on short-term rates — those most immediately impacted by Fed rate hikes. As such, the return on Treasury FRNs is based on the most recent 13-week T-bill plus a small spread.

Of course, this means their returns are slim at the moment. The 13-week T-bill currently only yields 0.08% and the spread on Treasury FRNs is only 0.07%, for a total yield of 0.15%.

However, this could begin to change once the Fed begins raising rates, something that might happen sooner than most investors think. James Bullard, president of the Federal Reserve Bank of St. Louis, recently said he sees the Fed raising rates in the first quarter of 2015 — well ahead of consensus forecasts for hikes to start in 2015’s third quarter.

Because the Fed wants to avoid triggering another recession, the initial pace of rate hikes would probably be fairly slow — on the order of 0.25% and 0.5% at the very most, depending on economic conditions. However, the pace could quicken substantially in subsequent quarters if the economy proves to be stronger than expected.

Treasury FRNs are easy to own: available online from TreasuryDirect with a minimum investment of $100 and a minimum holding period of 45 days. Bond holders receive interest quarterly, and this is subject to federal income taxes but exempt from state and local income taxes.

I don’t see much point in owning Treasury FRNs through an exchange-traded fund (ETF) right now, since fees typically more than erase any investment returns and you can often get a better yield on your own. However, investors who prefer the convenience and liquidity of an ETF should consider the iShares Treasury Floating Rate Bond ETF (NYSE: TFLO), which has $10 million in assets and yields 0.08%. There are other options, but none are better and TFLO at least waives its 0.15% management fee for the first year you own the fund.

Risks to Consider: With Treasury FRNs, you participate in rate changes regardless of the direction. If the yield on the 13-week T-bill falls, so does the interest paid on Treasury FRNs.

Action to Take –> Treasury FRNs should become increasingly viable for conservative income investors as interest rates trend higher. Such investors should monitor the progress of these bonds and consider adding them to their portfolios once yields attain more attractive levels.

As market dynamics change, it is important to have a strong retirement portfolio. My colleague Amy Calistri has the best retirement strategy we have ever heard of called, The Daily Paycheck Retirement Plan. She recently hosted a seminar infront of a live studio audience to explain how she earned 391 dividend paychecks a year — totally more than $1,300 a month. To learn more and watch her entire presentation, click here.