Investor 007's Bond Dossier

Meet Investor 007. His specialty? Bonds. Fixed-income bonds.

Don't be fooled by their low-profile reputation. Beneath that cunning disguise, bonds are sophisticated tools to help safeguard your portfolio from the perils of riskier investments. Here's the latest intelligence on their high-stakes world. If you're new to the game, get briefed on the basics of Investor 007's business, or check out our Bond Center for some useful gadgets to help ensure a successful investing mission.

Spying on rates
The benchmark U.S. Treasuries are key rates to keep under surveillance. Corporate issues are generally priced at a spread to a Treasury rate with a similar term, based on the issuer's credit rating.

Clues to the market
The broad credit market is influenced by a host of macroeconomic factors. Last week, bonds gained during a week marked by $38 billion in debt auctions and little economic data. For the week, the benchmark 10-year yield dropped three basis points to yield 4.79%, and the 30-year bond yield fell six basis points to yield 4.87%. Bond prices move inversely to yields.

Investors shrugged off a stronger-than-expected reading from the non-manufacturing sector on Monday, and Treasuries edged higher.

Strong three-year auction results and foreign buying helped Treasuries rise again on Tuesday; the 10-year yield fell four basis points to 4.77%.

Treasuries rose again on Wednesday, amid continued foreign buying and mixed productivity and labor data. The 10-year yield dropped to 4.75%. On Thursday, the 10-year yield slipped again to 4.73%, its lowest rate in almost a month, with Treasuries picking up thanks to a strong 30-year auction.

For the first time in the week, Treasuries fell on Friday, while various Fed officials stated that inflation remains a concern. The 10-year Treasury yield picked up five basis points, and the 30-year gained six.

Detecting developments
Investor 007 noted the following occurrences in the bond market last week:

• A Texas state court ruled that Sears (NASDAQ:SHLD) must pay a group of bondholders, including JPMorgan Chase (NYSE:JPM) and American International Group (NYSE:AIG), $73.5 million for a breach-of-contract suit arising from a 2004 bond-redemption case.
  
  
• The U.S. Treasury sold:
  • $16 billion of three-year notes at a lower-than-expected yield of 4.8%;
  • $13 billion of 10-year notes at a slightly higher-than-expected yield of 4.74%; and
  • $9 billion of 30-year bonds at a lower-than-expected yield of 4.812% to the highest demand in seven years.
    
• A group of Adelphia noteholders filed a request in federal court to overturn the company's plan to exit bankruptcy, because of an alleged invalid settlement among creditors regarding the valuation of shares of Time Warner Cable.
  
  
• Deutsche Bank and HSBC Holdings separately noted the increasing riskiness of owning low-rated subprime mortgage bonds.
  
  
• A group of Treasury market participants, organized by the Federal Reserve Bank of New York, published a report providing best-practices guidelines to avoid improper bond-trading activities.
  
  
• The Securities Industry and Financial Markets Association has recommended an early 2 p.m. close on Friday and a full close next Monday in observance of Presidents' Day.

Hot tip
The Big Board has been busily working on expanding its international alliances of late, including its purchase of Euronext, its investment in the National Stock Exchange of India, and its alliance with the Tokyo Stock Exchange, but it hasn't forgotten the bond investor.

NYSE Group (NYSE:NYX) plans to launch a new corporate bond-trading platform later this month, replacing its existing system. The new platform, known as NYSE Bonds, will greatly expand the universe of the exchange's corporate bonds. All NYSE-listed companies and their subsidiaries will be able to list debt without having to separately list each issue, bringing the number of eligible bonds up to roughly 6,000 from the existing roster of 1,000. So far, 10 unnamed firms have agreed to make markets for NYSE-listed bonds.

For investors, the benefits are clear. Fees are expected to decline by as much as 80%, and a company's whole balance will be available for trading. Reduced trading costs, a wider array of products, and more competition in a fixed-income market now dominated by major brokers may mean big business for the Big Board, which got its start by trading the nation's first bond.

NYSE Group is a Rule Breakers pick, while JPMorgan Chase is an Income Investor selection. Try any of our Foolish newsletters free for 30 days.

Fool contributor S.J. Caplan has been an undercover fixed-income aficionado ever since she served in banking and legal capacities covering debt underwriting and fixed-income derivatives. She owns U.S. Treasuries and shares of the Fidelity Inflation Protected Bond Fund and NYSE Group. She prefers her portfolio shaken, not stirred. The Fool has a disclosure policy.