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 remained largely range-bound. For the week, the two-year note yield rose 2 basis points to 4.75%, while the benchmark 10-year yield added a single basis point to 4.76%, and the 30-year yield also increased 1 basis point to 4.93%. Bond prices move inversely to yields.

Following the prior week's slide from the robust employment report, Treasuries paused on Monday and ended the session little changed. On Tuesday, higher yields attracted buyers, particularly Japanese investors, and prices edged higher.

Treasuries lost early strength on Wednesday. The 10-year yield rose 1 basis point to 4.73% after the release of the Federal Open Market Committee's March meeting minutes, which revealed an inflationary focus pointing to the possibility of higher rates. A soft auction for 10-year TIPS on Thursday kept price movement muted. On Friday, Treasuries weakened following the University of Michigan's sentiment reading that showed expectations of accelerating inflation and a weakening dollar.

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

  • The U.S. Treasury sold $6 billion in 10-year TIPS on Thursday at a higher-than-expected yield of 2.284%.
  • Moody's announced that it will require additional protection in the form of higher subordination levels for investors in securities backed by commercial properties.
  • Burlington Northern Santa Fe (NYSE:BNI) sold $1.3 billion of debt in a two-tranche offering, its largest offering to date.
  • Vanguard launched four fixed-income ETFs, each carrying an expense ratio of 0.11%, including the Total Bond Market ETF (AMEX:BND), the Short-Term Bond ETF (AMEX:BSV), the Intermediate-Term Bond ETF, and Long-Term Bond ETF.

Hot tip
It's time to check whether there's poison lurking in your bond holdings.

"Poison puts" are re-emerging as a popular feature in recent fixed-income offerings. Contrary to their name, these provisions actually are beneficial to investors. When a bond carries a poison put, it typically means that you can sell back your bond to the issuer at par or a premium if there's a change of control at the company. Additional conditions may be included, such as a requirement that the company's rating falls to junk status. This protection usually comes at a cost of lower yields, sometimes almost half a percentage point less than a comparable bond without such protection.

Given the recent frenzied pace of leveraged buyout activity, an increasing number of newly issued bonds are containing poison puts. The value of a company's debt and its credit rating often falls in a leveraged buyout, when an acquirer borrows about two-thirds of the purchase price in the company's name. According to Barclays Capital, a division of Barclays Bank, and as reported by Bloomberg, a record number of investment-grade borrowers sold bonds with poison puts in the first quarter. Among the companies including change-of-control provisions this year include Federated (NYSE:FD) and Costco (NASDAQ:COST), as well as last week's offering from Burlington Northern, which saw high investor demand for such protection and afforded interest expense savings to the companies.

Still, don't just take a broker's word for it that a bond contains poison-put protection. As with anything else, details vary, and some provisions include certain other triggering conditions. Read the indenture (the document that specifies the particular terms governing the bond) yourself to learn whether any poison might indeed become an elixir.

Moody's and Costco are Motley Fool Stock Advisor picks. See what Tom and David Gardner have recommended for their readers with a free 30-day trial to their flagship newsletter service.

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 a disclosure policy.