Goldman Sachs has re-favored Asian investment-grade dollar bonds over high-yield bonds due to concerns about the US economy and expectations of a dovish Federal Reserve.

"With US growth concerns resurfacing and valuations higher than at the end of 2024, we believe it is time to shift back to overweighting Asian investment-grade bonds over high-yield bonds," wrote strategists Kenneth Ho and Sandra Yeung in a report last Friday.

This brings Goldman Sachs back to its stance on the asset class from earlier this year. The bank had previously shifted to a neutral stance in May after Trump's announcement of global tariffs triggered a decline in credit spreads. The shift to a more cautious tone reflects renewed concerns about the momentum of US economic growth following unexpectedly weak recent jobs data.

The defensive attributes of investment-grade bonds make them attractive amid market expectations of a dovish Federal Reserve, while any weakness in the broader credit market could lead to underperformance in the high-yield sector, the Goldman strategists wrote.

In the Asian investment-grade bond market, Goldman Sachs believes that BBB-rated bonds, such as Hong Kong developer bonds and subordinated bank capital bonds, as well as Chinese investment-grade bonds with the highest risk premium, are the most valuable investments.