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.

U.S. Treasury

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Clues to the market
The broad credit market is influenced by a host of macroeconomic factors. Last week was rather quiet in terms of economic releases, and bonds marked their first weekly decline in four weeks.

Bonds weakened broadly on Tuesday after the market reopened following the long holiday weekend. The 10-year note yield rose to 4.78%, as prices dropped to their lowest levels in about two months. Economic data showing higher labor costs and a stronger-than-expected services sector sent bonds lower again on Wednesday, marking the first consecutive two-day decline in three weeks.

Bonds advanced modestly on Thursday, despite some hawkish comments made by the San Francisco Fed president regarding inflation. A large bid by an Asian central market was also rumored to provide a solid ground for Treasuries. Without showing much reaction to a balanced speech made by the Cleveland Fed president or a consumer credit report, buying continued on Friday ahead of the five-year anniversary of Sept. 11.

The Bond Market Association is recommending that in honor of the victims of the 2001 attacks, market participants observe moments of silence at 8:46 a.m. and 10:29 a.m. today.

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

  • Corporate bond issuance began September strongly, with many new issues coming from the financial services and bank sector, including Bank of America (NYSE:BAC), Capital One Financial (NYSE:COF), and Citigroup (NYSE:C). Approximately $85 billion in corporate debt issuance is expected this month.
  • Washington Mutual (NYSE:WM) is planning on becoming the first U.S. bank to enter the covered bond market in Europe, with a $25 billion deal later this month. Covered bonds are securities backed by mortgages or public sector loans, which the issuer can retain on its balance sheet. The bank will take advantage of lower funding costs and investor demand with a mortgage backed bond with fixed interest for five years, and adjustable thereafter.
  • The Treasury Department plans to hold a "reopening" auction of $8 billion 10-year notes tomorrow, where the notes will have the same maturity date and pay the same interest as the notes sold in the last auction.

Hot tip
Investor 007 overheard rumors that "deal pricing" may have also factored into market events late last week. This can occur when companies that plan on issuing bonds decide to sell Treasuries before their own issuance. By doing so, companies hedge the risk that an increase in yields would cause in terms of raising their own borrowing costs. The Treasuries purchased can then be bought back at a lower price if yields do rise, offsetting the higher issuance cost for the companies. Once the company's own bonds are sold, the hedge is typically unwound by purchasing Treasuries -- thereby lifting prices.

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Fool contributor S.J. Caplan has been an undercover fixed-income aficionado ever since serving in banking and legal capacities covering debt underwriting, as well as fixed income derivatives. She owns U.S. Treasuries and prefers her portfolio shaken, not stirred. The Fool has an ironclad disclosure policy.