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Boothe and Heidenberger tie One Big Beautiful Bill Act to profit gains and duration risk

In Insurance AUM Journal, they write that earnings improved on capex rather than cost-cutting and that private markets must absorb more duration supply.

At a glance

  1. Boothe is head of global investment grade and Heidenberger is a portfolio specialist; both hold the CFA designation.
  2. Long-duration assets may face structurally higher volatility as the private sector has to absorb a growing supply of duration, Boothe and Heidenberger write.
  3. Their framework is the Kalecki-Levy profits identity, taken from the national accounting link between savings and investment: corporate profits equal investment minus household, government and foreign savings.

The One Big Beautiful Bill Act has produced a corporate profit cycle that is still running, write Steve Boothe and Thomas Heidenberger in the Oct. 19 piece for Insurance AUM Journal.

Boothe is head of global investment grade and Heidenberger is a portfolio specialist; both hold the CFA designation. They argue that earnings have materially accelerated and improved in quality, and that the improvement did not come mainly from financial engineering or cost-cutting. It reflects a fiscal backdrop that reinforced a broad-based capex cycle centered on AI infrastructure, power demand and domestic manufacturing.

Long-duration assets may face structurally higher volatility as the private sector has to absorb a growing supply of duration, Boothe and Heidenberger write.

Their framework is the Kalecki-Levy profits identity, taken from the national accounting link between savings and investment: corporate profits equal investment minus household, government and foreign savings.

On that reading, profits tend to rise when private investment rises or when the public sector runs a deficit. The authors say that framework underpinned their expectation that the law would lift corporate profitability, and that the thesis understated the size of the profit cycle that followed.

They also resist the binary question of whether deficits are good or bad for the economy. Government deficits become private-sector income, they write; the question is where those flows land, and whether they finance productive investment, speculative excess or inflationary bottlenecks.

The two claims point in different directions for a credit portfolio. Better, higher-quality earnings argue for less compensation for default risk; a market that must absorb more duration argues for more compensation for price risk. For a general account holding long-dated bonds against long-tailed liabilities, the second is the one that shows up in portfolio marks.

Reported by the Insurance Credit desk from Insurance AUM Journal. Published . Corrections

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