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

100.08

4.72

Five-year

100.09

4.55

10-year

100.16

4.56

30-year

97.26

4.63

Clues to the market
The broad credit market is influenced by a host of macroeconomic factors. Last week, Treasury prices remained largely range-bound in light holiday action, until a drop in the dollar on Friday triggered a flight to safety, lifting bonds. Bond prices move inversely to yields.

Treasury prices rose slightly on Monday, despite leading economic indicators forecasting increased strength early next year. Although the yield on the 10-year remained unchanged, the 30-year bond yield fell one basis point to 4.68%. Prices continued to drift upwards on Tuesday, despite hawkish sentiment by a Federal Reserve Governor. The 10-year fell two basis points to yield 4.57%. Treasuries were little changed on Wednesday in a shortened trading session. When the market reopened on Friday, bonds rallied in thin trading as the dollar fell.

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

  • Bill Gross, manager of PIMCO'sTotal Return Fund, increased his position in debt maturing in less than a year to 45% of the fund's interest rate risk, the highest amount reported in six years.

  • Moody's (NYSE:MCO) announced that it is considering expanding its view of credit risk regarding hybrid securities and is seeking comments by the end of the year. The move could result in downgrades of about 300 securities.

  • The Securities Industry and Financial Markets Association reported that bond issuance so far this year has hit $4.19 trillion, as compared to $4.18 trillion a year ago.

  • A group of bondholders of Delta Air Lines is reportedly organizing to urge support of the takeover offer of US Airways (NYSE:LCC).

Hot tip
Would you like to do business with The Donald?

Bloomberg reported last week that the 8.5% notes due 2015 of Trump Entertainment Resorts have rallied to a six-month high. The bonds have returned 5.2% in the last month, beating the 1.77% return of the gaming index of Merrill Lynch (NYSE:MER).

A new management team led by James Perry, the former head of Argosy Gaming, now part of Penn National Gaming (NASDAQ:PENN), has sparked enthusiasm and renewed confidence among institutional investors. Potential expansion plans including Philadelphia and a rumored Atlantic City/Las Vegas swap with Wynn Resorts (NASDAQ:WYNN) have also sustained bullish sentiment.

That sounds great, but before you start bankrolling the company, take note of Mr. Trump's troubled record of creditor relations. When his Taj Mahal casino filed for bankruptcy in 1991, bondholders who financed the project lost $661.5 million in interest over seven years. Bondholders of Trump Hotels & Casino Resorts also endured duress. When Mr. Trump threatened to skip an interest payment in 2002, the bonds dropped 13%, and the company eventually filed for bankruptcy two years later.

It's all about risk. If you want to spin the roulette wheel, confident that business operations are prospering, go ahead and invest in the bonds. On the other hand, if you believe that past history is indicative of a worst-case scenario, you might be better off just betting your spare change on next season's winner of The Apprentice.

Moody's is a Motley Fool Stock Advisor pick . Get all the intelligence on David and Tom Gardner's top-secret list of superior stock selections with a free 30-day 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. She prefers her portfolio shaken, not stirred.