Company: TSI
Filing Date: 2025-03-05
Form Type: N-CSR
Source: 0001193125-25-046168
Chunk: 3

Company: TCW STRATEGIC INCOME FUND INC
Filing Date: 2025-03-05
Form: N-CSR
Chunk 3
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 its second straight 20%-plus year, a feat last occurring some 20 years ago.) Among securitized issues, agency mortgage-backed securities (MBS) were also weighed down by higher rates to post a 3.2% Q4 loss, pulling the annual return down to a mere 1.2% gain, making it the laggard among the sectors. Non-agencyMBS performed better for both the quarter and year against a backdrop of improving collateral fundamentals (mainly, falling loan-to-valueratios) and solid demand, while commercial MBS (CMBS) was similarly strong for the year with a 4.7% gain and good duration-adjusted returns, though lost 1.5% in Q4 given the rate moves. Asset-backed securities (ABS) provided the best returns among securitized products for 2024 with a 5% gain, owing largely to the floating rate issuance providing insulation from rate volatility and offering attractive coupons. 2

The Economy and Market Ahead Though the dominant theme across markets has been the re-emergenceof a “Goldilocks” economy following the election and attendant reinvigoration of U.S. growth prospects, there remains potential for volatility that could challenge market conditions and pricing. For one, the labor market continues to cool and reflect sagging employment demand which, despite not yet flowing through to higher unemployment, has been evident in more leading indicators. Despite being seemingly lost among the recent market moves, TCW remains of the view that the labor market is the key factor driving the direction of the economy, and that the trend of weak at worst and mixed-at-bestdata portends challenges to economic growth potential. Second, valuations, most notably credit spreads, have almost never been tighter, meaning considerable good news is already embedded in prices, creating an interesting paradox in that there is little to no protection should things not unfold as markets expect — which is of course exactly when one would want that protection. In terms of those expectations, market pricing in November clearly indicated that investors project great things from the new administration…and immediately, judging from risk market pricing. However, policy implementation takes time, and any potential benefits are likely to be felt with meaningful lags and with potential volatile secondary effects that may be difficult to fully account for today. Lastly, the recent surge in Treasury yields has kept rates restrictive, i.e., above equilibrium, and at levels that are likely to come down over the intermediate and longer term due to slowing effects throughout the real economy, most