TCW Senior Loan ETF Q3 2025 Commentary

2025-12-15 01:20:00 ET

Market Review

Now Showing: A Cooling Labor Market

If a swift and sharp recovery from tariff-driven volatility was the surprise Spring blockbuster, then a weakening labor market – evidenced by underwhelming payroll prints and significant downward revisions – was the summer flop. Combined with other employment indicators pointing to a low-hiring, low-firing state of the job market, the possibility of a further deterioration prompted the Federal Open Market Committee (FOMC) to implement a “risk-management cut” with a 25 basis point ( BP ) reduction to the policy rate. While swaps pricing reflected a unanimous vote by market participants for the rate cut by the time the September meeting arrived, the tenor from within the FOMC over the quarter appeared to be anything but. Indeed, two Governors dissented at the July meeting (the first two-Governor dissent in decades) in favor of an earlier start to rate cuts, while others cautioned against easing in the face of still-elevated inflation. Despite the divide in opinions, preventing any further softening in the labor market was shown to be top priority with the realized rate cut and median FOMC projection of two more cuts by year end. However, there remains lingering uncertainty among some market participants about potential longer-term tariff impacts and the Fed's independence that weighed on longer yields, resulting in their relative underperformance versus the front of the curve. Illustratively, 1- and 2-Year yields fell by 35 and 11 bps, respectively, while the 10- and 30-Year yields moved lower by 8 and 4 bps, respectively....

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