If the April lows hold, the will clock a 19% peak-to-trough drop on the tariff news. The drawdown could have been worse—if the bond market had not broken!
President Trump was initially resolute in the face of a declining stock market. Wall Street was desperately, unsuccessfully searching for a “Trump Put”—a save from the decline by the White House. Trump, however, likened the levies to a necessary remedy:
“Sometimes you have to take medicine.”
Treasury Secretary Scott Bessent, meanwhile, must have silenced his phone for a few weeks while his old Wall Street contacts texted and texted (and called) and texted. Bessent emphasized the need for personal resilience:
“Don’t worry, it’s just a little more pain and inflation disturbance before tariff greatness begins.”
The pain soon spread to the bond market, however. Yields on the surged from below 4% to 4.5% within days. This was curious behavior for the benchmark yield given the signs of an economic slowdown.
The breakdown in bonds immediately got the administration’s attention. Within hours of each spike in yields, President Trump’s pen was in motion—with ink quickly drying on papers that dialed back tariffs!
10-Year Yields Spike, Trump Loosens Tariffs
When asked whether his actions were prompted by bonds, Trump commented:
“The bond market is something I watch closely—it’s looking much better now.”
We found the Trump Put. And to Wall Street’s surprise, it was not in the stock market. The Trump Put was buried in the bond market!
Scott Bessent faces a financial Everest: refinancing a towering $9.2 trillion of US government debt, equivalent to reissuing one-quarter of the nation’s entire mountainous debt burden within a single calendar year.
If Bessent issues traditional long-term bonds, he’ll drive up the long end of the curve. So, we have seen him work towards a lower 10-year yield more diligently than any Treasury Secretary in recent memory. Bessent explicitly said:
“The president wants lower rates. He and I are focused on the 10-year Treasury.”
This is the first time in recent memory a Treasury Secretary has called out this benchmark yield as a goal. It is a notable shift from Trump 1.0, when the president was focused on a higher stock market.
Initially, the tariff news brought recession fears. Investors liquidated everything in a worldwide selloff. Yet, as bond-market turmoil revealed the hidden “Trump Put,” we contrarians focused on an intriguing middle ground between index funds and stuffing cash under mattresses: covered-call funds. These income plays sit comfortably between no-yield cash hoarding and aggressively chasing market swings.
The funds deliver generous monthly dividends amidst the uncertainty. They benefit from the likelihood that the president’s retreat from the bond market will ultimately be supportive of the stock market, too.
Earlier this month, we added Global X S&P 500 Covered Call ETF (NYSE:)—which yields more than ten times the dividend yield of the S&P 500—to our Contrarian Income Report portfolio. XYLD owns the same stocks as the benchmark index, but it also writes covered calls on the index itself.
XYLD currently has written calls on that expire in May. When that happens, the fund will write new calls for June—and generate more income.
The income from these consistently expiring calls is the key to the XYLD’s sky-high “synthetic yield.” The fund collects premiums from option buyers immediately after it writes these calls, generating steady income for shareholders.
We can think of XYLD as a savvy landlord leveraging its positions to generate extra cash. XYLD owns the underlying shares behind the S&P 500.
Each month it “rents out” these valuable holdings by writing call options, swiftly collecting lucrative premiums that fuel its hefty 11.9% dividend.
(CIR subscribers who bought XYLD amid the dark shadows of bear-market fears have pocketed 6.7% returns in mere weeks—a sizzling pace that annualizes to 117%. Well done!)
For “Trump Put believers” who are looking for more ways to ride the back of the bullying bond market, here are two more covered-call funds to consider. Both of these are closed-end funds (CEFs), which means they have fixed pools of shares. As a result, CEFs often trade at discounts to their net asset values (NAVs).
Both of these CEFs currently trade below their NAVs.
Nuveen S&P 500 Buy-Write Income Fund (NYSE:) employs a similar call writing strategy. The difference is that buying BXMX today is akin to snagging a crisp dollar bill for just 90 cents—thanks to its attractive 10% discount to its net asset value.
This deal wouldn’t be available in a standard ETF, but BXMX often trades at a discount during times of market unrest. The fund pays an elite 8.6% today and likely has more upside ahead.
Eaton Vance Tax-Managed Global Diversified Equity (NYSE:) is another covered-call CEF that first-level investors foolishly fled in a panic. EXG trades at an 8% discount to its NAV and yields a nifty 9.9%.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”