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.

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Clues to the market
The broad credit market is influenced by a host of macroeconomic factors. Last week, Treasuries lost ground as previous thoughts of future rate cuts gave way to concerns of rate hikes. For the week, the yield on the 10-year note leapt 11 basis points. Bond prices move inversely to yields.

The bond market closed on Columbus Day. Following the long weekend, it reopened with negative sentiments. Remarks from the St. Louis and Dallas Fed presidents on Tuesday led to increased speculation that the Fed would stay its hand rather than reduce rates. That pushed the yield on the 10-year note to a three-week high of 4.75%.

After early demand following aggressive North Korean posturing, prices fell again on Wednesday. The main culprit turned out to be the release of last month's minutes from the Federal Open Market Committee; the report showed lingering inflation concerns. A private-plane crash in New York City initiated a short-lived flight to quality, which was grounded when it became apparent that the incident was not linked to terrorism. The 10-year yield gained 3 basis points.

The slide in Treasuries halted on Thursday following the release of August's record trade deficit and Beige Book data showing wage growth as modest. The 10-year note's yield fell about a single basis point.

Selling resumed on Friday because of strong consumer-confidence numbers and last month's retail sales figures, which revealed underlying consumer strength. The yield on the 10-year picked up about 3 basis points, as market participants ended the week more convinced that the latest reports did not tell the story of an economy as weak as previously thought.

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

  • KDP Investment Advisors downgraded its recommendation on Cablevision (NYSE:CVC) bonds to "sell," following the second attempt by the Dolan family to take the company private. The Dolans will receive $12.4 billion from an assortment of term loans, interim loans, and credit facilities, facilitated by Merrill Lynch (NYSE:MER) and Bear Stearns (NYSE:BSC), to finance their purchase.

  • Bloomberg reported that insurance-sector bonds gained the most out of 15 industries tracked by Merrill Lynch, posting a 3.5% return in August and September. The strength in the bonds, from companies including American International Group and St. Paul Travelers, was attributed to the lack of hurricane activity this season.

  • Lehman Brothers (NYSE:LEH) will add adjustable-rate mortgage-backed bonds from Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) to its benchmark U.S. Aggregate Index on April 1, which may stimulate demand for these securities.

  • Real estate brokerage Realogy (NYSE:H) is making its debut in the debt markets with a $1.2 billion senior note three-tranche offering, priced after the bell on Friday. The securities contain an uncommon "poison put" provision aimed at protecting investors from leveraged buyout scenarios. Investors would be entitled to sell the bonds back to the company at face value if certain changes in ownership occur.

  • The Fed futures market revealed that traders believe there's a 0% chance of the Fed lowering rates this year.

Hot tip
Could TIPS be the hot tip for you?

TIPS is the Treasury Department codeword for Treasury Inflation Protected Securities. These bonds are sold in five, 10-, and 20-year denominations for a minimum investment of $1,000, with interest paid semiannually. The securities are aimed to protect the investor from inflationary risk by adjusting the principal semiannually for changes in the Consumer Price Index. If inflation rises, so does the interest payment calculated on the larger principal. The investor will receive the adjusted principal if it's greater than face value at maturity. Even in a deflationary scenario, the investor will receive the greater of the bond's initial face value or inflation-adjusted value.

Nothing in this world comes without a price. The caveat is that the investor pays for this protection through rates that are generally lower than those on plain-vanilla Treasuries. So, in a low-inflation or zero-inflation environment, one doesn't do as well.

Why now? Some portfolio managers think that declining housing and oil prices have taken their toll on the TIPS market. With renewed inflationary fighting rhetoric from the Fed this week and last week's employment data taking the wind out of the bond market's previous rate cut bias, TIPS have become cheaper compared with Treasuries. Yields on 10-year TIPS are now about 2.32% less than yields on 10-year Treasuries, down from the 2.6% differential seen two months ago. The Treasury also auctioned $8 billion of 10-year TIPS last week at a 2.426% yield, lower than expected.

Of course, if your view is that the economy will collapse, this kind of inflation insurance is still not appropriate for you.

Fannie Mae is a Motley Fool Inside Value recommendation.

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 does not own shares of any of the companies mentioned, but does own U.S. Treasuries and shares of the Fidelity Inflation Protected Bond Fund. She prefers her portfolio shaken, not stirred. The Fool has a disclosure policy.