[video] Quick Take: Why Treasuries Still Make Sense
NEW YORK (TheStreet) -- TheStreet's Gregg Greenberg spoke to William Irving, portfolio manager at Fidelity Investments, about the Federal Reserve and its effect on the fixed-income markets.
Irving said he expects Janet Yellen to have a bigger focus on communication than current Chairman Ben Bernanke did when she is confirmed to succeed him.
Irving said it's the Fed's intention to drive investors out of safe assets and into riskier assets such as stocks. With more investors chasing riskier plays, it will increase the wealth effect, he said, causing more spending and thus an improving economy.
Irving also said the economy cannot sustain significantly higher interest rates, which was apparent earlier this year when rates shot up but failed to hold those levels.
He forecasts that the 10-year Treasury yield, which is currently at 2.7%, could go to 3% in 2014 and no higher than 3.5% in 2015.
Economic growth has generally come on the back of falling interest rates and growing debt, and that is unlikely to change, Irving said.
Regarding investments, he suggested agency mortgage-backed securities are rather expensive, while Treasury inflation protected securities, or TIPS, are fairly priced.
Irving concluded that inflation is below the Fed's current target and is not a risk at this time -- meaning that TIPS investors will have to be patient for their investment to outperform regular Treasuries.
-- Written by Bret Kenwell in Petoskey, Mich.