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

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Clues to the market
The broad credit market is influenced by a host of macroeconomic factors. Last week, bonds relaxed a bit from their stomach-churning demise of the prior week, aided by the Fed's policy statement and a heavy load of mainly benign economic data. For the week, the benchmark 10-year yield dropped six basis points to yield 4.82%, and the 30-year bond yield fell five basis points to yield 4.93%. (Bond prices move inversely to yields.)

Treasuries began the busy week by closing largely unchanged on Monday. Tuesday brought modest buying attracted by high yields ahead of the Fed meeting.

On Wednesday, the expected Fed decision to leave rates unchanged, together with its policy statement acknowledging moderating inflation, gave the bond market a lift. The market had already heard positive news earlier in the day when the NAPM manufacturing index fell, indicating contraction. The 10-year yield dropped six basis points to 4.81%.

A large unexpected increase in December pending home sales and a manufacturing report showing a rise in prices paid for raw materials sales led to a sell-off on Thursday, with the 10-year yield rising to 4.84%. On Friday, Treasuries gained slightly after the December employment report revealed weaker-than-expected job growth.

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

  • US Airways (NYSE:LCC) withdrew its bid for Delta Air Lines on Wednesday, following the endorsement by Delta's unsecured creditors committee to stay independent. Delta's 8.3% notes due in 2029 were the most heavily traded corporate debt for the day, declining $0.0025 to $0.615 on the dollar.
  • Moody's announced that issuance of credit card-backed bonds climbed 4.6% last year, with much of the rise attributable to the return of Bank of America (NYSE:BAC) to the market.

Hot tip
Get ready to bid adieu to the three-year note -- corporate profits have reduced the need for the plucky security. Recently, the Congressional Budget Office reduced its forecast deficit for this year by 40% to $172 billion, thanks to a 23% increase in tax receipts generated by corporate profits in the first three months of the fiscal year. The Treasury responded last week by cutting its borrowing estimate for the current quarter by $35 billion to $141 billion.

In fact, the Treasury has not yet decided whether it will just reduce the frequency of issuance of the note or eliminate it entirely. The security's history reflects the impact of budgetary conditions. Previously canceled in 1998 amid budget surpluses, the three-year note was re-introduced in 2003 as deficits grew. This time, the Treasury's decision will be announced in May, following April tax receipts.

For the investor, a reduced supply may mean stocking up on two-year notes instead. In the meantime, a $16 billion auction of three-year notes is on tap for tomorrow.

Bank of America is an Income Investor selection. Moody's is a Stock Advisor pick. Check out our entire suite of newsletters by clicking here.

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 has an ironclad disclosure policy.