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Below, I outline my solid income, potentialstock market-beating strategy. Then I lay outthe basics of bonds, which will ensure thatthe media and brokers don’t pull a fast oneover you. And last I go through the YieldLetter service so that you know exactly howto unlock the profit potential my bond adviceoffers, and I provide you with my bondbroker directory.

My Strategy, Your ProfitAt heart, I’m a bond guy—a man who

prefers to assume the worst so I won’t be dis-appointed. And I’m a top-down investor wholooks at the economic data of a country likeit’s the books of a company. As a banker, Iknow where people like to hide their problemsand what numbers can’t be fudged. It’s thisskepticism and rigor that keeps my invest-ments profitable and timely.

In The Yield Letter, I’ll use my top-downinvestment approach. I’ll find a broad eco-nomic trend and a country, company or sec-tor that’s benefiting from that macro trend,

Investing in the bond market isn’t just all ornothing. Whether the economy is hot and

heavy or dull and depressed, there’s always apart of the market that’s bullish, providingvalue and positive investment performance.Every market—even bonds—has its cycles.

While market timers might advocate thatbonds are only useful as defensive assets, ethe-real truth is that the bond market is muchmore and can provide stellar returns in allmarket conditions, completely independent ofthe stock market.

Stocks are what Wall Street is all about. Butwhile markets continue to gyrate, it’s up to thebond market if you’re actually going to makemoney. Buying bonds, though, may be tread-ing into the unknown for new subscribers. Andwhat Wall Street doesn’t realize is that bondshave a secret: They can provide double- andtriple-digit gains for investors in the know.

I’ve lived this advice for some time. Let’send that once and for all—bonds aren’t trickyor boring once you understand a little morethan the basics.

Learning How To Get Paid:A Banker’s Secret

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find the bonds that are the best choice andrecommend you buy the bonds. This maynot strike you as a well-kept secret. Butthrough some digging and evaluation, tap-ping into the right countries or companiesand the right bonds at the right time couldfill your pockets with profits.

But before you start investing in the bondmarket, let’s review the basics so that we’re allon the same footing.

Bond BasicsBonds are simply securities issued to bor-

row money from investors. Issuers can begovernments or corporations. Governmentsrepresent the core of the bond market bothin the US and around the world—they bor-row to make up for revenue shortfalls orfund large-scale projects.

Corporations that need money to sustaincurrent operations as well as to expand theircapabilities will issue bonds. A bond is com-posed of the principal owed and interest tobe paid. Bonds range in maturities from afew months to many decades, with bills refer-ring to maturities less than one year andnotes referring to maturities from one to 10years. But whatever the maturity, all can becalled bonds.

When you buy a bond, you’re set to receiveprincipal at the maturity and interest (typicallyin the form of regular coupons) while youhold the bond. Coupons are usually paid oncea year, yet some markets including US Trea-surys pay investors semi-annually.

In addition to bonds that pay coupons,there are also bonds that pay their interest atmaturity. These types of bonds are referred toas zero-coupon bonds or strips. When youpurchase this type of bond, you pay a fractionof the maturity value of the bond with the dif-ference between the purchase and maturityvalues being your interest.

For the uninitiated, the idea of buyingbonds often is simply to buy and hold thebond to maturity and clip the interestcoupons. But bonds are more; they can pro-vide us returns that eclipse stocks. In the bond

market, total return encompasses the overallimpact of coupon interest as well as pricemovements in the price of the bonds them-selves. Buying bonds earning interest and sell-ing as yields fall is the real way to invest andwin with bonds. And this is what we’ll dotogether through The Yield Letter.

The Way of the TradeBonds trade on three characteristics in the

markets. The first is inflation, both now andin the future. The idea is that if inflation falls,the current value of those future interest andprincipal payments will be worth more, dri-ving bond prices up. Expectations remain sub-dued; this makes for lower inflation risk andhigher bond prices overall.

Next is the credit. The bond issuer,whether a government or a corporation, isthe interest and principal payer. If the markethas a positive opinion of the issuer, backedup by strong credit history and a good issuerrating, the yield commanded to buy thebond will be lower and less risky. As percep-tions of credit rise or fall, the issuer’s bondswill fall or rise in yield.

The Federal Reserve is making it harder forcompanies and other issuers to fail, so creditexpectations should improve, driving yieldslower. And with cash aplenty and lenders eager,the probabilities of default are reduced in themarket for riskier bonds. This means less of apremium in yield is going to be demanded.

Third—and most important in the marketnow—is competition for assets. Bond issuershave to compete against other issuers when theygo to the market to borrow money and sellbonds. In addition, from day one to the finalpayment and maturity, bonds from various mar-kets compete against other bonds as well asstocks, cash and other assets to attract investors.

If stocks are performing well, bond yieldswill tend to rise to attract more buyers. And ifcash or other alternatives become more entic-ing, bonds can suffer as yields are drivenhigher and prices fall.

In the bond market, the price and yield ofeach issue move hand-in-hand. As yields fall,

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prices rise, and as yields rise, prices fall. Thisinverse relationship between price and yieldbecomes more pronounced the longer thematurity of the bond.

Short-term bonds move much less thanlonger-term bonds. Fewer future cash paymentsare affected by the higher or lower yields for ashort-term bond and the effective discountingof the future cash flows to the bond’s presentvalue. The rule of thumb is the longer thebond, the greater the price to yield changes.

It’s important, when investing in the bondmarket, to look at these components thatdrive bond yields and prices. In The Yield Let-ter, we’ll look at how inflation, credit andcompetition affect our recommended debt.

There’s more to the bond market than juststraight bonds. Whether it’s bond funds orIncome Deposit Securities (IDSes), which arecomposed of common stock and a bond,there’s a bounty from which to choose. In TheYield Letter, I’ll recommend and cover bonds,bond funds, IDSes and more.

Going GlobalAnother area we’ll look at in The Yield Let-

ter is foreign bonds. Buying bonds around theworld is like buying stocks, because bonds canbe viewed as the country’s core assets. As issu-ing countries’ fundamental conditions improveor falter, their bonds will most closely reflecttheir changing fortunes.

If a country’s government is faltering, thefalling tide of the economy will be a difficultenvironment for any company to remainbuoyant, just as a rise in fortune will be sup-portive for most commercial ventures. Byfocusing on the bond market, investors canhone in on the changing trends in the generalmarketplace for all assets.

Bonds are good barometers of a country’scondition because creditors are the most cau-tious of investors. As creditors become moreimpressed with the fortunes of debtors, theinterest rates commanded in the market for newand existing bonds will fall. But when a hint ofconcern enters the picture, the first signs of mar-ket destruction come from the bond pits.

In transitioning markets, it’s the bonds thatlead the rest. As countries repair credit andattack local inflationary pressures, bondtraders tend to notice, driving prices up andyields down. This allows companies to benefitfrom an emergence of available capital and areduction in funding costs. Then the broadermarkets of equity stock can begin to reflect apotential further turnaround.

Buying bonds of countries just as they’refixing past woes is a surefire way to profitfrom economic turnarounds. All it takes is thewillingness to look beyond the stock marketand mistaken notions of bonds to capitalize onthe power of positive change in bond marketsaround the world, while Wall Street is stillpeddling its lousy stocks

In The Yield Letter, I’ll lead you down thepath to investing in foreign bonds. Nationsranging from Korea to Mexico and even theUS have bonds that pay 10 percent or moreand should give you the opportunity to profitfrom rising prices—giving you even greaterreturns.

Currency ConcernsBeyond the bond market itself, the cur-

rency that denominates the bond can alsoplay a vital role. Governments around theworld issue bonds in their own market, intheir own currency, as well as in the globalbond market in other currencies. For bondinvestors, currency can be a double-edgedsword, either adding or subtracting to bot-tom-line profits.

In the case of countries that are fixing theireconomic and financial ills, investing in theirbonds can provide windfalls. In addition, asbonds of such countries begin to reflectimproving inflation and creditworthiness, thecountries’ currencies will also tend to reflectthe improving core economic fundamentals.However, if conditions begin to deteriorate,the foreign exchange markets as well as thebond traders will often quickly react by pun-ishing the currency and the bonds.

Buying into economic reformations throughthe bond market can be accomplished through

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local currency bonds and often in US dollars.Historically, there are many great examples ofwindfalls from using both strategies. In the1990s, many countries in Europe and Asiabegan to awaken to the benefits of reformation.The results of their efforts rewarded farsightedinvestors with huge returns.

One of the more memorable occurrenceswas in the New Zealand bond market. In the’80s, the country had fallen into a period ofpoor fiscal and monetary management thatresulted in an outflow of capital, and evenpeople, at an alarming rate. For the country tofund its spending needs, the markets com-manded yields in the high double digits. Inaddition, with horrible economic conditions,foreign exchange traders sent the NewZealand dollar to the depths of 40 cents.

Faced with a crisis, the country restructuredits government in numerous ways, includingmaking each minister responsible by contractfor specific objectives. The Governor of theBank of New Zealand, for example, had tokeep inflation under 2 percent or face a breachof contract. As a result, the country is now amodel of responsibility.

Eventually, the markets noticed and drovethe New Zealand dollar higher and higher inthe ensuing years. Bond traders also saw themonetary discipline driving inflation lower aswell as the fiscal discipline resulting in improv-ing credit conditions. Ultimately, yields weredriven down and prices soared.

Even more recently, during the Asian eco-nomic crisis, another country was under the gunresulting in a windfall in the making. Korea, oneof the wealthiest nations in Asia, was pressuredto reform as many of its regional neighbors—including Thailand, Indonesia and Malaysia—were facing economic reckonings.

In 1998, the world was holding its breath asseveral countries in Asia and Europe wereheading into crisis, making the bond market inKorea a tough place. Then, when Russiadefaulted on its bonds, traders dumpedKorean bonds in sympathy, which drove yieldsinto the high double digits.

All this happened despite the country’s sub-

stantial reserves. In addition, Korea had main-tained trade and financial surpluses with therest of the world and had only two outstand-ing bonds that they could easily have madegood on. Many bond traders were able to stepinland and buy US dollar-denominated bondsfor pennies on the dollar, which are now trad-ing back above par and even at premiumprices. We’ll look further at these currencyopportunities in The Yield Letter.

Mortgage MavensAnother way investors use the bond market

without even realizing it is through their homemortgages. Mortgages are the chief means ofproviding money for individuals to purchasehomes in the US and around the world.

In the US, families go to mortgage lenders,which can be finance companies or banks.After the loan is made to purchase or re-finance a home, it’s pooled together withother home mortgages and then the collectionof pooled loans is sold to the market in theform of a bond. We’ll look further at mort-gage companies and mortgage bonds that areworth capitalizing on in The Yield Letter.

These are only a few examples of variousdebt markets that present themselves each andevery year. Through this service, we’ll delveinto the markets that are already in motion andexplore the ones that are about to take off.

Ins and OutsFirst, I’d like to welcome you to The Yield

Letter. I’m happy you’ve subscribed and willsoon be unlocking untold profits through mybond advice. Twice a month, you’ll receivearticles that focus on current happenings inthe bond market or aspects that are impor-tant to you and your portfolio. Articles willbe published at www.yieldletter.com.com. I’llalso keep you informed via regular MarketUpdates throughout the month.

As part of your subscription, you’ll haveaccess to two portfolio tables, the TaxablePortfolio and the Tax-Free Portfolio. Eachwill include specific recommendations. I’llalso cover popular debt securities in the

Learning How to Get Paid

bond world that you may be holding. I’llupdate the portfolios on a regular basis withactionable advice and details that are criticalfor you to lock in big profits.

Make sure to check in regularly atwww.yieldletter.com for Market Updates,through which I’ll update you on bond mar-ket news and information regarding ourholdings. I’ll also use the Market Updatesection to alert you to breaking news regard-ing portfolio holdings, and you’ll be notifiedvia e-mail when such alerts are posted.

Together we’ll dive head first into thebond market, explore the various securitiesavailable and reap the high potentialrewards together.

Bond Broker DirectoryNow that you’ve subscribed and will be

receiving my bond advice and recommenda-tions, you need a broker who will executeyour trades. As part of your subscription toThe Yield Letter, I’m providing you access tosome of my closest and long-time friends inthe bond broker industry.

First is Martin Truax, from Morgan Keegan.Martin and I have been long-time friends, andI worked with him at Mark Twain Bank. He’sa 30 year-plus veteran to the broker industryand has been in the financial newsletter indus-try since it started. Contact Martin at 866-813-9911 for your bond brokerage needs.

Next is Chris Gaffney. Chris was my part-ner at Mark Twain Bank. He’s now the vicepresident of Evertrade Direct Brokerage.He’s a veteran to this industry and has a

great deal of experience with US dollar,non-US dollar and non-US government,agency and corporate bonds. Contact Chrisat 800-926-4922 for help with your globalbond needs.

Another former colleague of mine fromMark Twain Bank is Mark Elmore, principle atTahoe Fixed Income. Mark specializes in USbond with a focus on agencies, pass-throughsand collateralized mortgage obligations(CMOs). Contact Mark at 775-852-3994.

My former mentor and bond rabbi at MarkTwain Bank—Bill Stern—is a great source forhelping you with your bond broker needs.He’s a principle at Stern Brothers and special-izes in mortgages, passthroughs, CMOs,municipal bonds and corporate bonds with aconcentration in the US markets. Contact Billat 314-727-5519.

Another broker who can execute your playsin the housing market is Mark Verbeist. Markis a former colleague and trader of mine. He’sa veteran trader in the industry, with expertiseon handling mortgage bonds, pass throughsand GNMAs. He’s currently a bond trader atNational Alliance Securities. You can reachMark at 877-680-6588.

Furthermore, Fidelity Investments(www.fidelity.com) and Charles Schwab(www.schwab.com) offer you bond trade ser-vices. Fidelity specializes in government, muni,corporate, agency and some foreign bondissues. Schwab offers on- and offline trading inthe domestic and international bond markets.Schwab clients can reach the dedicated tradingteam at 888-621-4355.

Learning How to Get Paid

Disclaimer: The information contained in this premium is current as of 08/10/07. For the most up-to-date advice and pricing, go to www.yieldletter.com orcheck your latest issue of The Yield Letter.