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

Price

Yield (%)

Two-year

$100

4.85

Five-year

$99.13

4.75

10-year

$100.20

4.79

30-year

$93.20

4.91

Clues to the market
The broad credit market is influenced by a host of macroeconomic factors. The market didn't move too much last week overall, despite daily wavering as it awaited Friday's consumer price index report.

Treasury prices slipped on Monday during a day in which several Fed presidents spoke, without anyone opining that interest rates would be lowered in coming months. Following initial choppy trading, Treasury prices advanced after strong demand in the 10-year auction. The 10-year note marked its largest gain in nearly a month to close at a 4.77% yield.

Prices advanced slightly Wednesday, buoyed by corporate buying on a rather quiet day ahead of potentially market-moving data later in the week. Bonds then slipped Thursday when retail sales figures advanced again, renewing concerns over another possible interest rate hike. Profit taking also prompted a late sell-off ahead of the next day's inflation data.

Following Friday's release of the consumer price index, prices initially gained as the report showed prices rising an expected 0.2%. Later in the day, shorter-dated maturities eased a bit when traders read uncertainty over this week's Fed meeting into comments made by the Kansas City Fed president.

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

  • Bonds issued by Freescale Semiconductor (NYSE:FSL) rose Monday after reports surfaced of a possible $16 billion leveraged buyout of the company by a consortium of firms. Traders bid up the securities, anticipating that the bonds would be repurchased at a premium. A deal would likely knock the company squarely into junk territory.

  • General Motors Acceptance Corp., the financing arm of General Motors (NYSE:GM), announced that it plans to sell bonds for the first time in two years once the sale in a stake of GMAC is completed. GMAC bonds have rallied in the past year as investors anticipate a return to investment-grade ratings. The sale may occur by the end of the year.

  • The Treasury sold $8 billion in 10-year notes in an auction which was a reopening of the existing 4.875% notes; they sold at a yield of 4.81%.

  • Moody's (NYSE:MCO) announced on Wednesday that, due to increased leveraged buyout activity, it would seek comment on potential revisions to its criteria for evaluating bonds. LBOs frequently result in increased debt levels, pushing credit ratings into the junk category. The ratings agency said it may evaluate the extent to which bond covenants protect against a change-of-control scenario or transition to junk status.

  • Anadarko Petroleum (NYSE:APC) sold $5.5 billion in three-year, 10-year and 30-year bonds. Strong demand led to the offering being increased by $500 million more than the originally planned issuance. The deal marked the largest U.S. corporate bond offering by an industrial company in more than six months.

Hot tip
Slippage in yields may occur as the Treasury market continues to consider its existing bias that the Fed may cut rates later this year. Most economists currently believe that rates will be left unchanged following this week's Fed meeting. Friday's benign CPI data would also seem to support that opinion.

Investor 007 sometimes picks up hints on where the market may be heading by checking out weekly public data compiled by the Commodity Futures Trading Commission and published on Fridays. Last week's data revealed that long positions on 10-year note futures contracts rose 13% from the prior week, showing that more speculators are betting that prices will increase.

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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.