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 (%)













Clues to the market
The broad credit market is influenced by a host of macroeconomic factors. Last week, bonds tanked, with strong economic data not only challenging the market's previous bias toward an interest rate cut, but hinting of possibilities of a future increase. For the week, the benchmark 10-year yield increased 10 basis points to its highest yield in five months, and the 30-year bond yield gained 12 basis points. Bond prices move inversely to yields.

Treasuries began the week on a positive note and rose slightly on Monday, aided by lower stock prices and higher yields. On Tuesday, prices fell amid technical selling, corporate issuance, and a 20-year TIPS auction. The 10-year yield added three basis points to reach 4.80%.

Treasuries remained little changed on Wednesday before heading south on Thursday amid stronger housing data and a weak five-year auction. Technical selling and a heavy corporate supply continued, pushing the 10-year yield to 4.88%, its highest level since last August. Strengthening new home sales and durable goods figures did little to impact the market on Friday, with bonds largely standing their starkly lower new ground.

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

  • Bloomberg reported that as oil prices decline, OPEC nations are selling Treasuries at their fastest pace in more than three years.
  • Alcoa (NYSE:AA) sold $2 billion in a multi-tranche offering, its first since 2002, which was met with strong demand. The 10-, 20-, and 30-year bonds feature a "poison put," requiring the company to repurchase the bonds at 101 cents on the dollar in the event of a change in control.
  • The Treasury conducted the following auctions: sold $8 billion of 20-year TIPS on Tuesday to strong demand, at a yield of 2.42%; sold $20 billion two-year notes on Wednesday to strong demand, at a yield of 4.93%; and sold $13 billion five-year notes on Thursday to weak demand, at a yield of 4.855%.

Hot tip
A tip from last week's TIPS auction: Inflationary concerns are rising.

When Fed officials speak of increasing inflationary pressures, as San Francisco Fed President Janet Yellen did last week, they do so after burying their heads in reams of economic figures and doing a lot of number-crunching. You could do that too, or you could take a quick gauge of investor concern by checking the results from Tuesday's TIPS sale.

The auction revealed demand for 20-year TIPS at its strongest level in two and a half years. The securities' 2.42% yield was one basis point shy of their pre-auction activity, and approximately 2.58% below the 20-year Treasury. Your cheat sheet into discerning inflationary expectations lies in the difference between the yield of a TIPS security and its comparable Treasury, which signifies the average expected inflation rate spanning the life of the notes. The current gap is the highest it has been in a month, though still well below the 2.95% differential measured last May.

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 shares of the Fidelity Inflation Protected Bond Fund. She prefers her portfolio shaken, not stirred. The Fool's disclosure policy is a jet-setter.