Q&A: Bonds Have More Fun

Mary J. Miller, assistant director of T. Rowe Price Group Inc.'s (TROW ) $45.5 billion

fixed-income division and portfolio manager of the T. Rowe Price Tax-Free Income Fund, has been a bond investor for 20 years. She spoke recently with Personal Finance Editor Susan Scherreik.

Q: What's ahead for the bond market?

A: Fixed-income performance in 2003 is more likely to be driven by sector choices than by interest rates. High-yield corporate bonds, mortgage-backed securities, and tax-exempt municipals look most attractive.

Q: Don't many state and local governments have serious fiscal woes?

A: Yes, but remember state and local governments don't go bankrupt. They'll find a way through this painful period and come out in better shape.

Q: What don't you like?

A: Treasuries look problematic. There's been such a huge move into short-term Treasuries by risk-averse investors that there's not much room for any further price appreciation.

Q: Do you worry about deflation?

A: There are pockets of deflation, such as in telecommunications and technology sectors, but we don't expect it to spread to other parts of the economy.

Q: What's your forecast?

A: We see the economy getting back on its feet in 2003 while inflation stays tame. As a result, short-term rates will edge up while long-term rates hold fairly steady.

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