U.S. Interest Rates Climb To 8%
This thesis takes a specific scenario seriously: U.S. interest rates, led by the federal funds rate and long-term Treasury yields, climbing to around 8%, a level not seen since the late 1980s. The drivers would be persistent inflation, heavy Treasury issuance to fund federal deficits, and a Federal Reserve that keeps tightening rather than easing. At that level, the cost of debt reshapes which business models work: refinancing becomes the dominant corporate risk, and the spread between what a company earns on cash and what it pays on borrowing becomes a central line item. Portfolios under this theme select companies whose economics improve or hold up as rates rise. That means banks and brokerages that earn net interest income on deposits and client cash, insurers that reinvest premium float at higher yields, and payment and exchange operators with little debt. It also means cash-rich technology, industrial and consumer businesses with long-dated fixed-rate borrowing, and it avoids leveraged firms facing near-term refinancing.
CME Group is a derivatives exchange and clearing house — nothing else. 2025 revenue $6.52b, of which clearing and transaction fees $5.28b; interest rate futures and options (SOFR, Treasuries) are the largest product line at roughly half of 28.1m contracts of daily volume, about a third of clearing fees at a $0.49 rate per contract. the clearing house reinvests cash performance bond collateral (about $148b cash, $167b non-cash in early 2026): 2025 investment income $5.74b, most passed to clearing firms, leaving a net spread of roughly $0.5b against $5.33b pre-tax income, and the 10-Q explicitly ties that income to the federal funds rate. for the exchanges and clearing houses angle this is the archetype: rates volume, volatility volume and collateral income are the whole business. not 1.0 because energy, equity index, ag and metals volume and market data are rate-agnostic.
Travelers is a single-business property-and-casualty insurer (SIC 6331) with three segments — Business Insurance, Bond & Specialty and Personal Insurance — and no life, annuity or banking operations. Q2 2026 net earned premiums were $10,753m against net investment income of $1,070m, and invested assets of roughly $103bn are 95% fixed maturity and short-term securities, so the whole earnings engine is short-tail underwriting float reinvested in bonds. that is exactly the leg this portfolio targets: as the bond book rolls into 8% yields, investment income rises without a matching move in claim liabilities. net investment income already grew 14% y/y in Q2 2026 on higher yields. the business is entirely the thesis for this angle → 1.0.
W.R. Berkley is a commercial-lines P&C insurer (SIC 6331) — excess and surplus, workers' compensation, specialty casualty and a smaller reinsurance and monoline excess segment. 2025 net premiums written were $12.7B, of which $11.2B insurance and $1.5B reinsurance; there is no life or annuity book. the thesis channel is the float: about $31.6B of invested assets, fixed-maturity book yield 4.7% and effective duration 3.0 years, so the portfolio would roll to an 8% reinvestment rate inside the horizon. net investment income was $1,429M in 2025 against total pre-tax income of $2,281M, so investment yield is already a majority of earnings and scales almost one-for-one with rates. the whole business is the P&C leg of this angle; the haircut from 1.0 reflects that the book is commercial casualty (medium-tail, inflation-sensitive reserves) rather than short-tail specialty, plus a modest investment-funds and non-insurance 'other' line.
RLI Corp is a single-business specialty property and casualty insurer (SIC 6331) writing casualty, property and surety through specialty admitted (60% of 2025 gross premiums) and excess and surplus (39%) channels; it has no life, annuity, lending or other segment, so the whole business sits inside this portfolio's P&C angle. the rate channel is the float book: $4.7B of investments and cash at end-2025, 76% fixed income, generating $159.7M of net investment income in 2025 (up 12%) and $88.4M in H1 2026 (up 16%) on higher reinvestment rates — a meaningful share of pre-tax earnings alongside underwriting income on an 84-86 combined ratio. two deductions from pure: average fixed income duration of 4.7 years is longer than the one-to-three-year short-tail ideal in the brief, so the roll to 8% takes several years and carries interim mark-to-market losses in equity; the casualty-majority mix is longer-tailed than property or surety. tier 0.9.
Arch Capital is a Bermuda specialty p&c insurer and reinsurer with a smaller mortgage-insurance arm. 2025 gross premiums written of $22.9b split 48% reinsurance, 46% insurance and 6% mortgage, so about 94% of premium is short-tail-weighted p&c (re)insurance — the angle's business. investable assets were $47.4b at year-end 2025 with fixed-maturity duration of 3.34 years, meaning most of the bond book rolls into an 8% reinvestment rate inside the two-to-four-year horizon; net investment income was already $1.6b in 2025 against roughly $3.0b of underwriting income and $3.7b of after-tax operating income, so float yield is a comparable earnings driver to underwriting. the mortgage segment is only 6% of premium but about $1.0b of underwriting income and is housing-linked, which dilutes an otherwise pure fit — hence 0.85 rather than 1.0.
RenaissanceRe is a Bermuda property-catastrophe and casualty/specialty reinsurer (SIC 6331) with no other business line. it earns from three sources — underwriting, fee income from managed third-party capital vehicles, and net investment income on a $36.1b portfolio — and in FY2025 net investment income ($1.7b) exceeded underwriting income ($1.3b) and fee income ($328.9m), so investment yield is already the largest earnings driver. the fixed-maturity book is short: 2.6 to 2.9 year duration, 4.8% to 5.1% yield to maturity, meaning the bulk of the portfolio rolls into an 8% reinvestment rate within the thesis horizon. liabilities are reinsurance reserves that do not reprice with rates. this is the P&C/reinsurance float leg exactly as the brief describes it; pure play for this angle.
Progressive is a monoline short-tail P&C insurer — personal and commercial auto plus specialty and some homeowners — with about 27 million personal auto policies, $21.6B net premiums earned in Q2 2026 and $3.3B quarterly net income. the whole business sits inside this portfolio's angle: there is no life, annuity, asset-management or banking segment. the rate channel is the float: a roughly $95B investment portfolio, about 95% fixed income, duration 3.5 years, AA- quality, producing $979M of investment income in Q2 2026 (up 12% y/y). at 8% the book rolls over within three to four years, lifting investment income from roughly a fifth of pre-tax earnings toward a third or more. a small haircut from 1.0 because underwriting profit (combined ratio ~87) still dominates earnings, so rate sensitivity per dollar of earnings is lower than at float-heavy reinsurers; 0.9.
Interactive Brokers is an automated retail and institutional brokerage with roughly $780b of customer equity. net interest income on margin loans and customer segregated cash is the largest revenue line — $1,057m of $1,896m net revenues in q2 2026, about 56% — with commissions the remainder. the business is the leg-1 brokerage mechanism directly: management discloses +$81m of annual nii per 25bp rise in fed funds from a 3.64% base, so a move to 8% adds roughly $1.4b a year before balance growth, against a pre-tax run-rate near $5.8b. duration risk is negligible — the investment portfolio averages under 30 days, so no held-to-maturity mark — and margin loans are collateralized. the remaining ~44% of revenue is volume-driven commissions and fees, not rate-driven, which keeps this below a full pure play. tier 0.8: rate-spread income is the majority of the business but not all of it.
Commerce Bancshares is a Missouri-based regional commercial bank (about $32B assets after the January 2026 FineMark merger) with commercial, retail and wealth segments. net interest income was 63% of 2025 revenue ($1.11B of $1.76B); the other 37% is trust, card and payments, and deposit fees that do not reprice with the policy rate. the balance sheet is asset-sensitive in the way the thesis wants: 60% of loans are variable rate, non-interest-bearing deposits are about 30% of deposits, loans-to-deposits is near 70%, total deposit cost was 1.14% at Q4 2025 against a 3.5-4% fed funds rate (low cumulative beta), and net yield on earning assets rose from 2.58% in 2021 to 3.63% in 2025 through the last hiking cycle. offsets: a roughly $9-10B available-for-sale securities book carried $731M of unrealized losses at Sep 2025 and reprices slowly, and provisions rose 70% in 2025.
Kinsale Capital Group is a mono-line excess and surplus lines property and casualty insurer — one reportable segment, sic 6331, revenue from premiums and investment income only. it fits the P&C angle of this portfolio almost completely: cash and invested assets of $5.5b against a $7.7b market cap, net investment income of $55.7m in q2 2026 against pre-tax income of $219.8m (about a quarter of earnings), interest expense of only $3.3m, and a fixed-maturity book of 4.3 years duration that rolls into higher yields without an offsetting liability reprice. the discount from 1.0 reflects two things: the book is casualty-heavy rather than short-tail, and the 4.3-year duration is longer than the 1 to 3 years the brief expects, so reinvestment at 8% would take most of the horizon to flow through and unrealized losses would hit book value in the interim. underwriting income (combined ratio 75.5%) remains the larger earnings driver.
Raymond James is a wealth-management broker-dealer with a captive bank. in fiscal q3 2026 net revenues were $3,928m, of which asset management and related administrative fees were $2,075m (about 53%) and combined net interest income plus RJBDP sweep fees from third-party banks were $658m (about 17%). the rate leg runs through $57.8b of client sweep and enhanced-savings balances and a roughly $55b bank loan book — the company's own filings say lower short rates cut NII and RJBDP fees, so it is asset-sensitive. but the spread line is a minority of revenue beside market-linked advisory fees, capital markets and asset management, and fy2024 showed cash sorting into higher-cost ESP balances absorbing much of the rate benefit. material but not dominant exposure → 0.55, below the 0.6 threshold for the pure sleeve.
Tradeweb operates electronic marketplaces for rates, credit, equities and money markets; revenue is transaction fees and commissions (about 83% of 2025 revenue) plus subscriptions and LSEG market data fees. the rates asset class (US and European government bonds, swaps, TBA MBS) was $279.1m of $521.2m in 4q25, roughly 54% of revenue, and management ties treasury revenue to intraday rate volatility, so the volume half of the exchange leg is the majority of the business. the other half is absent: Tradeweb is a trading venue, not a clearing house, holds no margin collateral and earns no collateral float. interest on its own cash was $68.4m in 2025 against $1.17b pre-tax income, under 6%, incidental. credit (24%) would see lower issuance-driven volumes at 8%. material rates-volume exposure without the collateral mechanism → 0.5, between material and peripheral for this angle.
construction analyst: cullen/frost is a single-business texas bank whose 10-q puts net interest income at 76% of revenue, with a 53% loan-to-deposit ratio and 34% non-interest-bearing deposits, so majority exposure is clear and tipranks and the globe and mail corroborate independently. but the researcher did not read the rate-sensitivity table or the cumulative deposit beta, flags that frost's beta ran high in 2022–23, and cre is about $11b of roughly $23b loans, with $1.15b of afs losses already on the book — the brief's sign conditions are unverified or borderline. 0.7 reflects majority exposure without the near-pure premium the unverified screens would need.
East West Bancorp is an $80b-asset commercial bank (Pasadena, CA; SIC 6022) whose earnings are almost entirely net interest income — q1 2026 nii of $671m on $774m revenue, about 87%. the fy2025 10-K discloses a positive nii response to higher rates (+3.2% at +100bp, +5.6% at +200bp) driven by a floating-rate loan book repricing faster than deposits, and management calls itself an asset-sensitive bank, so the business is a direct expression of leg 1. two features keep it short of a clean pure play: observed beta on interest-bearing deposits is 0.62 (blended nearer 0.47 given 24% noninterest-bearing deposits), and commercial real estate incl. multifamily is roughly $20.7b of $55b loans (~38%), a large book even with 49% average ltv and office at 4% of loans. securities marks are small (aoci −$346m vs $8.9b equity). a bank whose p&l is the thesis but with only moderate sensitivity and a heavy cre share → 0.8.
LPL Financial is the largest US independent broker-dealer and RIA custodian, with ~$2.6t client assets. the rate channel is client cash: ~$57b of sweep balances placed with third-party banks under fixed and floating deposit agreements. q2 2026 client cash revenue was $457m against gross profit of $1,618m, about 28%, and it is near-pure margin so its share of pre-tax income is higher. company sensitivity is ~$45m annual gross profit per 25bp of short rates; the ~60% fixed-rate ICA ladder delays but does not remove the repricing, and deposit beta has run ~15-20%, far below the brief's 60% threshold. the other ~70% of gross profit is advisory, commission and service fees tied to equity markets and advisor recruiting, not rates. material but not dominant → 0.6 under the brokerage angle.