The Federal Reserve's decision last week to increase US base rates by 25 basis points may have been widely expected, but markets were still surprised by the central bank's positive assessment of the economic environment, says Architas deputy chief investment officer Sheldon MacDonald.
Speaking in the above video, which continues Professional Adviser's Architas Advent Calendar counting down to Christmas, MacDonald discusses the Federal Open Market Committee's decision and explains why Architas anticipates rates higher than market expectations going into 2017.
With the US economy close to full employment levels, inflation is expected to rise as a result of the tax cuts and fiscal boost that is anticipated when Donald Trump takes office.
MacDonald says: "We have maintained lower than benchmark exposures to changes in rates. In part this has been based on a view that bond valuations are very rich - both relative to other markets, especially equities, as well as in absolute terms.
"As yields rise, bonds' relative valuations will improve. For now, though, we are sticking with our view - staying underweight in government bonds and preferring the lower duration corporate bond and high-yield areas for our fixed income exposure."
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