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Prior to the start of the Iran War, President Donald Trump had been feuding with Jerome Powell about cutting interest rates. Despite tremendous capital inflows from tariffs, record-low inflation, and a revived business climate due to cutting bureaucratic Biden-era restrictions, Powell stubbornly refused to cut rates.
Kevin Warsh took the Fed chair oath on May 22, 2026, officially replacing Jerome Powell. However, the Iran War’s impact on oil prices has sent gas prices climbing, reviving inflation to exceed the Fed’s prognostications. While many economists have anticipated that Warsh might need to raise interest rates to ameliorate inflation, other hints, such as the freshly announced peace agreement with Iran, might instead trigger the cuts that President Trump has been advocating since his previous term.
The 30-Year Long Bond began a steep downward spiral in 2020, not coincidentally with the advent of Bidenomics. The past consecutive six years has shown red ink for the Long Bond, as its year end closeout yields display:
- December 31, 2020: 1.56%
- December 31, 2021: 2.06%
- December 31, 2022: 3.11%
- December 31, 2023: 4.09%
- December 31, 2024: 4.41%
- December 31, 2025: 4.78%
ETFs that track long term Treasury Bonds have understandably plummeted in sympathy. The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) has been the whipping boy of the rate-hike era, and the iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (NASDAQ: TLTW) has served as TLT’s income-focused cousin that pays you to wait. Bond investors are now trying to figure out what direction Warsh plans to take, and what it means for the long end of the curve. If Warsh leans towards a rate cut, TLT mathematically gains more than almost any other listed asset.
iShares 20+ Year Treasury Bond ETF and iShares 20+ Year Treasury Bond BuyWrite Strategy ETF
TLT is an ETF that holds 99% of its portfolio in long-term US treasury bonds, like the 30-year Treasury.
Launched in July of 2002, TLT holds a ladder of U.S. Treasury bonds with maturities greater than 20 years. 99.58% of the portfolio consists of US Treasuries with a modicum of cash, and TLT pays the coupon interest to shareholders monthly. With its top Moody’s and S&P Ratings, there is no credit risk to speak of. TLT has $42.9 billion AUM at the time of this writing, and has a 0.15% expense ratio. Its current 30-day yield tracks at 4.95%; the 30-Year Treasury is at 4.97% – so TLT accurately reflects the long bond’s moves. .
TLTW is a layer on top. Debuting in August 2022, TLTW owns TLT (100.1% of net assets) and sells monthly covered calls that are approximately 2% out of the money against that position. Shareholders collect TLT’s coupon income plus the option premium, then surrender any upside above the strike price. TLTW’s expense ratio is 0.35% and AUM is $1.97 billion. The income is a nice incentive for those monitoring TLT for any signs of a rate cut price boost: TLTW sports a 12.53% yield.
Solid Income While Hemorrhaging On NAV
Despite the immovable consistency of its coupon payouts, TLW has suffered -28% NAV price erosion over 6 years in sync with the llong bond.
The income on TLT is as safe as anyone could want. The U.S. Treasury writes the checks. The NAV price of the fund between coupon payments is another story.. TLT has a duration history of roughly 17 years, which means a 100 basis point move in long rates translates to about a 17% move in price in the opposite direction. TLT’s 5-year total return of -28% is the ugly, red flag proof. While its coupons kept paying, its price collapsed.
That sword cuts both ways. The 30-year Treasury yield has already pulled back from a 5.03% peak on June 8 to 4.97%, with the fed funds rate stuck at 3.75% after 75 basis points of cuts last fall. If Warsh delivers another rate cutting cycle along with cooling inflation from normalization of oil prices, the long end has the most to gain. If Warsh disappoints and the curve re-steepens through higher long rates, TLT bleeds again.
Flipping The Script
TLTW’s covered call strategy delivers a 12.53% yield, but that can drop sizably if there is a Fed rate cut.
Covered call income is dependably solid when the underlying security trades sideways or drifts downwards. It can be treacherous when the underlying security rallies hard. TLTW caps your upside at the strike price every month, so a sharp Warsh-driven rally in TLT, which is the entire reason to own long Treasuries here, would leave TLTW holders watching TLT pull away while their TLTW shares stall near that month’s call option strike. TLTW’s one-year total return of 9% versus TLT’s 4% shows the income strategy working in a range-bound scenario. Reverse the scenario, and the relationship script flips accordingly.
Option premiums also shrink when implied volatility on Treasuries levels off. A confident, telegraphed Fed cutting cycle tends to do exactly that. TLTW’s distribution is not guaranteed to stay at recent levels, and historical NAV erosion since its August 2022 inception (price essentially flat over nearly four years) shows where the trade-off resides.
Both distributions are safe in the narrow sense. TLT pays U.S. Treasury coupons and will keep doing so. TLTW pays Treasury coupons plus option premium, and the premium can vary but is not in any structural danger. Total return is where one finds a difference: TLT is the cleaner expression of a Warsh ate cut thesis: high duration, full upside, zero cap. On the other hand, TLTW is the choice for those desiring a heavier yield today and are willing to sacrifice the home-run upside scenario. Those investors who believe rates are coming down hard will prefer to own TLT for the bond play. Those who think that the market will grind sideways will opt for TLTW.