Company: TSI
Filing Date: 2025-09-04
Form Type: N-CSRS
Source: 0001193125-25-195336
Chunk: 3

Company: TCW STRATEGIC INCOME FUND INC
Filing Date: 2025-09-04
Form: N-CSRS
Chunk 3
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 The reinvigoration of risk sentiment late in the second quarter had a pronounced effect in the corporate markets, where both investment grade and high yield credit spreads retraced all the April widening and then some to drive advances of 4.2% and 4.6%, respectively, with excess returns of 21 and 104 bps. Within securitized markets, agency mortgage-backed securities (MBS) returned 4.2% as the asset class benefitted from moderating rate volatility, while non-agencyMBS issues also posted positive returns given strong carry and improved valuations. On the commercial MBS (CMBS) front, Index returns were led by the 4.7% gain for agency-backed issues, while private label conduits advanced 4.3%. Finally, traditional asset-backed securities (ABS) included in the Index returned 2.9%, while non-traditionalsectors like CLOs also performed well alongside falling risk premiums and tightening of spreads. The Economy and Market Ahead Despite the volatility that shook markets in April and caused consumer sentiment to crater to some of the lowest levels in years, we believe a snapshot of market levels at the beginning and end of the quarter would instead suggest that markets had simply continued the trend that has been in place for much of the past year — one of tighter credit spreads and fresh all-timeequity highs. That a recovery from the April meltdown occurred in such a quick amount of time highlights both the persistent complacency and underappreciation of downside risk that has permeated many investors’ outlook and powered markets through event-driven volatility. However, we have yet to see how markets respond to a slower, more fundamental shift in the economic backdrop, something that has been occurring in the background but is seemingly lost in recent trade-dominated headlines. At the forefront of this shift is a slowing of the labor market as there has been a substantial drop in the rate of hirings, and though there hasn’t been a large increase in the rate of firings, that is often the case early in the cycle and we expect to see job losses pick up as high interest rates, elevated uncertainty, and higher tariffs start to bite. Meanwhile, the labor force itself is also undergoing a fundamental shift resulting from the administration’s immigration policies, resulting in a reduction in the number of people actively seeking a job, which has in turn artificially suppressed the unemployment rate and provided cover to the FOMC to keep rates steady. However, in our view, the longer rates remain at currently restrictive territory,