NEW YORK (TheStreet) -- The yield on the benchmark 10-year Treasury bond may only be 2.4%, but it has come a long way toward fair value in just two short months, according to Jim Kochan, chief fixed income strategist Wells Fargo Funds Management.

"It's a lot better than 1.8% where it was two months ago," said Kochan. "I think there is one more concern looking forward and that is when the Federal Reserve actually announces it is going to start raising the federal funds rate. We might see that yield get to 2.6% or 2.7%. We are closer to fair value now certainly than we were several months ago."

Staying with government-issued bonds, Kochan said he is not a fan of Treasury Inflation-Protected Securities, or TIPS, despite recent indications of rising inflation. Core CPI rose 0.3% in April, ahead of Wall Street's 0.2% consensus estimate and the surge in hiring in May also boosted wages with average pay rising 8 cents to $24.96 an hour. That was a 2.3% jump over last year and the highest rate since mid-2013.

"Even though we are seeing a little more inflation in the United States, the way that TIPS are calculated you will see low total returns for the remainder of this year," said Kochan. "If I were to recommend TIPS it would be to wait until next year when we would get better inflation adjustments to the TIPS themselves."
 
Kochan is positive on the municipal bond market, however. While problems in Puerto Rico and Chicago are making headlines, he does not believe they will drag down the broader market.
 
"There are pockets of these kinds of credit problems, but overall the demand for municipal bonds is still very strong and it's likely to stay strong now that yields are somewhat more attractive than they were six months ago," said Kochan.
 
Kochan is also bullish on high yield bonds now that the sector has recovered from the energy issue crash last December.
 
"This is one of the few markets that we follow on the domestic markets where yields are higher today than they were a year ago because we had that adjustment last year," said Kochan. "They could go modestly higher, but during this big selloff we've had in Treasuries and other markets yields on the high yield corporate side did not increase all that much. There is good value in high yield."

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