When looking for income, investors may want to take a look at mortgage-backed securities. MBS are debt obligations with cash flows linked to the payment of principal and interest on a pool of mortgages. The AAA asset class at agency MBS can generate returns ranging from 5.5% to 6%, said Leslie Falconio, head of fixed income strategy at UBS Americas investment office. “His time has come,” she wrote in a July 13 note. Even the king of bonds, Jeffrey Gundlach, is a fan of mortgage-backed securities, saying on an investor call in June that “this may be one of the most attractive entry points into ownership in the agency mortgage market.” “Mortgage spreads continue to be really attractive, particularly relative to their lack of negative convexity,” Gundlach said, referring to a measure of the relationship between bond prices and bond yields. “Agency mortgages are the cheapest end, on a risk-adjusted basis certainly, in the entire fixed income market.” Mortgage-backed securities underperformed in 2022 and the first part of this year thanks to interest rate volatility, but that volatility should start to ease as the Federal Reserve wraps up its rate hikes, Falconio said. She specifically likes the MBS agency and expects them to “perform better materially” in the second half of the year. “The return you can earn for, say, a current coupon and the spread you’re earning is almost similar to something on a BBB [investment grade] corporate [bond]However, it’s AAA-rated, it’s liquid, and through the second half of the year, and into the first quarter of 2024, when growth starts to slow, we think it’s going to be a very good opportunistic relative value play across industries,” Falconio told CNBC. His bias is toward a higher coupon asset class, but he said the bias is starting to turn a little more positive. The macro environment is going to dictate a lot, but they’re getting “Mortgage spreads widened quite significantly, volatility was high, of course, so it’s hard to time it, but that presents opportunities in our tactical framework,” he said, noting that the framework is typically between six and 18 months.Money managers and financial advisers will look to take advantage of 4% to 6% coupons, but regular investors will probably find it easier to turn to a mutual fund or an exchange-traded fund, he said Alvarado. Here are some MBS ETFs. For those who do turn to a fund, Alvarado recommends finding one that is actively managed. “If interest rate volatility were to increase for whatever reason … it would be better for the money manager to be able to play along with the volatility, because we might be a bit ahead of the game,” he said. However, he does not favor commercial mortgage-backed securities. Wells Fargo recently downgraded CMBS to unfavorable from neutral, saying it believes commercial real estate values ”will likely continue to deteriorate.” UBS’s Falconio is also waiting for a better entry point for CMBS, as well as non-agency MBS. Slower growth in the second half may cause some volatility in spreads, he wrote in his note. — CNBC’s Michael Bloom contributed reporting.