Amid the uncertainty around tariffs and the path of Federal Reserve monetary policy, investors can find attractive opportunities for income, according to Goldman Sachs Asset Management. The central bank opted to hold interest rates steady when it concluded its two-day meeting on Wednesday. The Fed still anticipates two reductions this year , but expects higher inflation and lower economic growth ahead. At the same time, the market is awaiting a resolution on tariffs. President Donald Trump ‘s deadlines for reaching trade deals is fast approaching, with the pause on reciprocal levies due to expire in July. “The next couple of months of data are going to be the proving ground for understanding how the tariff shock really is going to feed through the system,” Simon Dangoor, head of fixed income macro strategies, said in Goldman’s midyear outlook event this week. “There’s still a lot we don’t know about where tariff policy is going to end up. The uncertainty effect really builds with time,” he added. “The next couple of months, where the data plays out, is going to be key for understanding how the Fed plays its hand.” Dangoor said he expects the central bank to remain on hold at next month’s meeting, but believes a path could open up for it to resume rate cuts later this year if the labor market weakens. Goldman’s income play In this environment, Dangoor is focused on income as credit spreads are tight. “Credit spreads have gone back to being frustratingly expensive, but we think that that’s underpinned by really quite good fundamentals in the corporate sector,” he said. “We continue to see very disciplined behavior from corporates that leaves us wanting to build our portfolios for carry.” Securitized products in particular have attractive income relative to risk, he said. Within securitized, he likes collateralized loan obligations — especially the AAA-rated assets, the highest quality part of the market. The Janus Henderson AAA CLO ETF (JAAA) currently has a 30-day Securities and Exchange Commission yield of 5.35%. Flows into CLOs remain strong, Dangoor noted. “Issuance of the underlying bank loans is reasonably soft, ” he said. “That combination of a reasonably light supply of the underlying asset and the strong demand is something that we think will keep CLOs behaving very well and offering quite attractive carry to risk.” “We like new issue CLO, where you get a such a long reinvestment period and an opportunity to create a portfolio of new vintage loans that’s been underwritten to the current environment.” he added. In addition, Dangoor sees select opportunities in commercial mortgage-backed securities because there is some value and space for credits to compress. In particular, he likes single-asset, single-borrower CMBS on a high-quality underlying office collateral. “If you’re prepared to do the underwriting work, [they] can give you some comfort about recovery to really all scenarios and particularly where those single-asset single-borrower deals have been refinanced to the new prevailing interest-rate environment,” Dangoor said. “We think that they are pretty robust structures and offer quite attractive value.”
