TCW High Yield Bond ETF Q4 2024 Commentary

2025-04-03 22:43:00 ET

Summary

• TCW High Yield Bond ETF fell 0.22% in the final quarter of 2024 based on net asset value, to trail the Bloomberg U.S. High Yield 2% Issuer-Capped Index by 39 bps, while the full year return of 6.32% was 187 bps behind the Index.
• As a consequence of the higher rates, fixed income returns were generally negative in the fourth quarter, though shorter maturity indexes delivered a flat Q4, i.e., no-to-limited losses.
• Methodical de-risking and allocation shifting of HYBX is prudent, especially in an environment where credit spreads are priced to perfection and default risks are rising.

Review – The Economy: Breaking Down or Busting Out?

For an apparently fading economy that had sufficiently convinced the Federal Reserve to initiate monetary easing in September with a 50 basis point (bp) cut, the market cast doubts on that view to close out 2024. Embracing the growth outlook broad equity indexes added to accumulated year-to-date gains while interest rates sold off to move higher, especially longer tenors of the yield curve. The summertime reflection that brought Fed Chair Powell to an ease was labor market weakness borne of decelerating job creation and rising unemployment, even as inflation remained sticky and above its 2% target. However, the outcome of the election and accompanying expectations of renewed U.S. growth potential quickly replaced any lingering labor market concerns. As a result, 5- to 10-Year U.S. Treasury yields rose nearly 100 bps from mid-September to year-end, while the Fed eased two more times, delivering a “bear steepening” scenario and generally disappointing bond returns as a result....

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