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















Clues to the market
The broad credit market is influenced by a host of macroeconomic factors. Last week, Treasuries benefited from a continued appetite for less risky assets. For the week, the benchmark 10-year yield dropped four basis points to 4.55%, while the particularly rate-sensitive two-year yield fell eight basis points to 4.66%. Bond prices move inversely to yields.

Bonds opened the week on the upside, as subprime mortgage concerns spurred demand for safety. The 10-year yield dropped four basis points to 4.55%. Treasuries rose again on Tuesday following continued mortgage concerns, weak February retail sales numbers, and a declining stock market in the afternoon. The two-year note yield plummeted 13 basis points to 4.51%, while the 10-year yield dropped to 4.49%.

On Wednesday, choppy trading in both equities and fixed-income markets eventually led to a decline in Treasuries, with the 10-year yield increasing five basis points. Yields remained little changed on Thursday, which brought a stabilizing equity market and mixed economic news, including both a greater-than-expected increase in wholesale prices and slumping regional manufacturing. Prices slipped slightly on Friday in reaction to a surprisingly strong consumer price index report.

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

  • New Century Financial announced on Monday that it does not have cash to pay creditors, and Standard & Poor's, a division of McGraw-Hill, cut the near-bankrupt company's credit rating to D.
  • Bonds of Spectrum Brands (NYSE:SPC) jumped on Monday after the company announced that it will refinance $1.6 million of its credit facility and $350 million 8.5% notes due in 2013 with an 11% coupon, which will increase semi-annually.
  • Accredited Home Lenders (NASDAQ:LEND) announced it will seek debt waivers and new funds, including a sale of $2.7 billion of mortgages, in order to placate creditors concerned over default possibilities.
  • The U.S. Treasury sold $8 billion in 10-year notes on Tuesday at a higher-than-expected 4.523% yield.
  • Standard & Poor's cut Dell's (NASDAQ:DELL) credit rating from A- to A, citing concerns over profitability and an SEC accounting investigation.
  • Fund manager Pimco forecast that subprime mortgage defaults will infect other aggressively written mortgage loans.

Hot tip
One of this country's popular financial talking heads, Suze Orman, disclosed recently that she invests the bulk of her money in tax-free zero-coupon municipal bonds.

Long a sleeper investment class and often plagued by headlines alleging rigged bidding, munis deserve respect. Especially attractive for high-tax-bracket investors, munis issued by an agency or town within the state you reside can shield you from both state and federal income taxes.

As with savings bonds, you invest principal today and receive a larger sum upon maturity, with the difference remaining tax-free. You don't earn income in the meantime. Typically offered in minimum increments of $5,000, munis offer a great way to save for a specific event. You don't really want to trade these securities prior to maturity, because prices can jump around quite a bit. Shop around for the best prices on high-rated or insured muni zeros, and you, too, can save like Suze.

Dell is an Inside Value and Stock Advisor pick. You can check out any of the Fool's newsletters with a 30-day free trial.

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 and Goldman Sachs. She prefers her portfolio shaken, not stirred. The Fool has a disclosure policy.