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, Treasury prices fell for the fourth week. Signs of an economic recovery grew, leaving the market vulnerable to selling pressure as the likelihood of a rate cut this year seemed increasingly unthinkable. For the week, the two-year note yield gained 12 basis points to 4.96%, while the benchmark 10-year yield increased nine basis points to 4.95%, and the 30-year yield added six basis points to 5.06%. Bond prices move inversely to yields.

Treasuries greeted the return from the long holiday weekend with a move to the downside on Tuesday. Rising consumer confidence figures and a weak two-year auction pushed the two-year yield to 4.87%, its highest level since mid-February, while the 10-year yield increased to 4.88%. Prices remained little changed on Wednesday. Early gains, arising from a flight to safety from the Chinese stock plunge, dissipated when U.S. stocks rose to record levels and the release of the Fed's latest minutes echoed sentiments about a prolonged housing recession and inflation posing the economy's biggest risk.

Selling took over the next two days. On Thursday, prices fell following a slew of economic information, including a lowered estimate of U.S. economic growth, but a much stronger than expected Chicago purchasing managers' manufacturing report. A monthly rebalancing of bond indices helped support prices, as the 10-year yield rose two basis points to 4.89%, while the yield on three-month T-bills reached a one-year low of 4.73% because of supply constraints. On Friday, a robust May employment report, followed by a strong manufacturing reading, squelched any remaining hopes for a rate cut. Yields spiked across the curve, with the 10-year yields climbing six basis points to 4.95%, its highest level in over nine months, and leaving a 5% rate a very likely level for both the two- and 10-year notes in the near future.

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

•   The U.S. Treasury conducted the following auctions: sold $18 billion two-year notes to weak demand on Tuesday at a yield of 4.886%; and sold $13 billion five-year notes to weak demand on Wednesday at a yield of 4.818%.

•   Fitch Ratings cut its ratings for IBM (NYSE:IBM) one notch to "A-plus," citing the company's increased leverage because of the acceleration of its stock repurchases.

•   Corporations issuing debt included the following: American International Group (NYSE:AIG) sold $750 million 40-year hybrid notes, in an offering increased by $450,000. Duke Energy Carolinas, a unit of Duke Energy (NYSE:DUK), sold $500 million 30-year bonds. Enbridge (NYSE:ENB) sold $400 million seven-year notes, in an offering increased by $100,000. Forest Oil (NYSE:FST) sold $750 million 12-year notes, in an offering increased by $250,000. General Electric Capital, a unit of General Electric (NYSE:GE), sold $750 million seven-year notes. Lyondell Chemical (NYSE:LYO) sold $510 million 10-year notes; Merrill Lynch (NYSE:MER) sold $1.9 billion five-year notes. And Regency Centers, an affiliate of REIT Regency Centers (NYSE:REG), sold $400 million 10-year notes, in an offering increased by $50,000.   

Hot tip
The Big Three may soon see more competition, and we're not talking autos.

In the credit-rating market world, three New York-based companies account for approximately 95% of the credit-rating market worldwide. That's a lot of clout for Moody's (NYSE:MCO), Standard & Poor's, a division of McGraw-Hill (NYSE:MHP), and Fitch Ratings. Other companies holding federal status are A.M. Best, Dominion Bond Rating Service, and Tokyo-based Rating and Information Service.

U.S. rulemakers have now opened the door for other ratings firms to gain federal approval. The SEC recently adopted rules, prompted by legislation passed last fall, that allow firms to register for federal approval after providing audited financial statements, performance details, and certifications from institutional clients. The intent of the rules is to replace previously existing barriers to entry with a transparent and voluntary registration system that does not favor any particular business model. The SEC will also be on the watch to deter "notching," a practice by which ratings companies have allegedly penalized securities rated by competitors.

For the Big Three, these rules may mean more competition and a loss of revenue. Most importantly for investors, increased competition should translate into improved ratings quality, accountability, and transparency.

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. The Fool has an ironclad disclosure policy.