Fed Chair Powell Cites Trump Pressure in Legal Threats

Chilean fixed-income investors are turning their attention outward in 2026, with decisions made in Washington and global geopolitical tensions now seen as more influential than the country's new political leadership.

A Bloomberg survey of analysts and traders reveals a clear shift in focus. When asked about the most important driver for Chilean interest rates this year, respondents were split evenly: 30% pointed to the US Federal Reserve, and another 30% cited global geopolitics. For January alone, the Fed's influence is even more pronounced, with 40% identifying US monetary policy as the top factor. Geopolitics ranked third, its highest share in the survey since May.

This outlook underscores just how tightly Chile's bond market is linked to international trends. Movements in US Treasury yields and shifts in global risk appetite often have a more direct impact on peso-denominated assets than domestic economic or political events.

Geopolitical Tensions Add a New Layer of Risk

Global political risks have surged to the forefront, driven by upheaval in Venezuela and renewed friction between the United States and China. Following the removal of Nicolás Maduro in Venezuela, Vice President Delcy Rodríguez was sworn in as acting president. The Trump administration has since encouraged US energy firms to help revive the country's oil sector while pressing Caracas to limit its relationships with China, Russia, Iran, and Cuba.

China has responded firmly. Foreign Ministry spokeswoman Mao Ning recently condemned reports of US pressure on Venezuela as a "typical bullying act." While US Energy Secretary Chris Wright later clarified that Washington would not block China's access to Venezuelan oil, uncertainty persists. It remains unclear how aggressively the Trump administration will move to counter China's deep investment footprint across Latin America.

"In the event of an escalation or increased tensions between major powers, a risk-off stance in portfolios would not be unreasonable," noted Rodrigo Skarmeta, a strategist at SURA Investments. He explained that such a scenario could lead to capital flowing out of Chilean fixed-income assets and into safer havens, which would hurt valuations and push local yields higher.

Investor Strategy for a Changing Market

Even without a major geopolitical shock, investors are bracing for a less lucrative year after a strong 2025. "Fixed income will offer lower returns compared to last year," Skarmeta said, adding that opportunities can still be found in the middle of the yield curve, especially in bonds with maturities of three to five years that offer good risk-adjusted returns.

Survey data reveals a clear consensus among investors:

• Maturity: Three-quarters of respondents favor securities with maturities between one and five years.

• Debt Type: Among those, 45% prefer debt linked to the Consumer Price Index (CPI).

• Yields: A majority expect yields to fall, with 60% anticipating a decline for nominal bonds and 45% for inflation-linked notes.

• Yield Curve: Nearly 45% expect the nominal yield curve to steepen.

Fed Uncertainty Remains the Dominant Concern

For investors, the issue isn't whether the Federal Reserve will cut rates, but the ambiguity around the timing and speed of its actions.

"Although the Fed is likely to cut rates moderately this year, there is considerable uncertainty regarding the pace and timing of these cuts, as well as how changes in the Fed's composition might influence the rate path," said Pedro Quintanilla-Dieck, a strategist at UBS. He stressed that any volatility in US Treasuries would be "transmitted directly to the Chilean bond market."

Domestic Politics Take a Backseat

Meanwhile, local political developments are becoming less of a concern for the market. Despite the upcoming March 11 inauguration of President-elect José Antonio Kast, Chilean politics ranked last as a potential driver for interest rates for the first time since September.

Kast has outlined an agenda that includes cutting $6 billion in spending over 18 months, reducing corporate taxes, streamlining regulations, and boosting infrastructure investment. He also plans to tighten immigration enforcement and address crime.

"The arrival of a center-right government with a fiscal consolidation agenda is positive for Chilean assets," Quintanilla-Dieck concluded. He suggested this should "limit sharp movements in the yield curve, especially at the long end."

Iran is grappling with one of the most significant challenges to its clerical leadership since the 1979 Islamic Revolution, as nationwide protests are met with a violent state crackdown. In response, U.S. President Donald Trump is weighing a range of options, including potential military action, while Tehran signals it remains open to dialogue.

The unrest, which began over severe economic distress, has escalated into widespread calls for the fall of the clerical establishment. As the government attempts to suppress the demonstrations, Iran's leaders find themselves confronting a defiant populace and mounting international pressure, all while their regional influence has diminished.

Protests and Crackdown Grip the Nation

The demonstrations, which started on December 28, have spread across the country. Initially sparked by soaring prices, they quickly evolved into a broader anti-government movement. The government's response has been severe.

According to the U.S.-based rights group HRANA, the crackdown has resulted in a significant death toll. The group has verified the deaths of 490 protesters and 48 security personnel. Additionally, more than 10,600 people have been arrested. Iranian authorities have not released an official count, and a state-imposed internet blackout since Thursday has severely restricted the flow of information.

Figure 1: This map illustrates the widespread nature of protests across Iran, which started on Dec. 28 and peaked at 177 locations by Jan. 8 before a nationwide internet blackout was imposed.

Washington Considers Military Strikes and Sanctions

The White House is actively considering its response to the escalating violence. President Trump confirmed on Sunday that he is in contact with the opposition and that a meeting with Iranian officials is being arranged to discuss the country's nuclear program.

However, he also warned that action might be necessary before any meeting takes place. "Iran wants to negotiate," Trump told reporters. "We might meet with them... but we may have to act because of what is happening before the meeting."

Trump is scheduled to meet with senior advisers on Tuesday to discuss a list of options for Iran. According to The Wall Street Journal, these include:

• Military strikes

• Deployment of secret cyber weapons

• Expanded sanctions

• Providing online support to anti-government groups

Executing military strikes on installations could be highly risky, as some elite military bases are located in densely populated areas, potentially causing large civilian casualties.

Tehran's Dual Strategy: Dialogue and Deterrence

Despite the tense situation, Iran claims it is maintaining lines of communication with the United States. Foreign ministry spokesperson Esmaeil Baghaei confirmed on Monday that a channel between Foreign Minister Abbas Araqchi and U.S. special envoy Steve Witkoff remains open for necessary exchanges. Traditional diplomatic contacts through Switzerland are also active.

"The Islamic Republic is a country that never left the negotiating table," Baghaei stated, but noted that "contradictory messages" from the U.S. undermined their seriousness. Araqchi echoed this sentiment, stating that Iran is prepared for war but also open to dialogue.

At the same time, Iranian officials have issued stark warnings. Parliament Speaker Mohammad Baqer Qalibaf, a former Revolutionary Guards commander, cautioned Washington against a "miscalculation." He declared that in the event of an attack, "the occupied territories (Israel) as well as all U.S. bases and ships will be our legitimate target."

This aggressive posturing comes as Tehran recovers from a war last June, during which the U.S. and Israel bombed its nuclear sites. Iran's regional power has also been weakened by setbacks for allies like Lebanon's Hezbollah following the October 7, 2023, attacks on Israel.

Iran's Official Narrative: Blaming Foreign Powers

Iranian authorities have accused the United States and Israel of orchestrating the unrest. State media has called for nationwide rallies to condemn what it calls "terrorist actions led by the United States and Israel." State television broadcasted footage of pro-government demonstrations and funeral processions for security forces killed in the clashes.

Araqchi asserted the situation was "under total control" and claimed Trump's warnings had encouraged "terrorists" to target both protesters and security forces to provoke foreign intervention.

To control the narrative, authorities have blacked out the internet. In response, President Trump said he would speak with Elon Musk about potentially restoring access through the Starlink satellite service. Araqchi said internet service would be restored in coordination with security agencies.

Alan Eyre, a former U.S. diplomat and expert on Iran, told Reuters he believes it is unlikely the protests will topple the government. "I think it more likely that it puts these protests down eventually, but emerges from the process far weaker," he said, pointing to the cohesion of Iran's elite and the lack of an organized opposition.

Indonesia plans to sell US-dollar bonds, the first such offering by an Asian sovereign this year, giving further impetus to a record start to global debt issuance by borrowers in 2026.

Southeast Asia's largest economy started marketing fixed-rate bonds with maturity of a little over five years, 10- and 30 years, according to people familiar with the matter that asked not to be identified talking about confidential information.

The sale comes as the administration of President Prabowo Subianto looks to fund a budget deficit that risks exceeding the legal cap of 3% of gross domestic product (GDP) in 2026.

Indonesia has set its budget deficit target at 2.68% of GDP this year, with total net bond issuance — including local- and foreign-currency debt — pegged at 799.5 trillion rupiah (RM192 billion) in 2026. The gap hit the highest level in at least two decades in 2025.

Citigroup Inc raised its 2026 budget deficit forecast to 3.5% of GDP from 2.7%, citing expectations of faster spending on the free-meals programme and larger transfers to regional governments.

Source: Theedgemarkets

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Source: CNBC

India’s consumer inflation accelerated to 1.33% in December, a notable increase from the previous month's 0.71%. However, the headline figure fell short of the 1.5% increase that economists surveyed by Reuters had anticipated.

RBI Forecasts Signal Future Inflation Path

The Reserve Bank of India (RBI) projects that consumer inflation will average 2% for the fiscal year ending in March 2026. This represents a downward revision from the 2.6% forecast the central bank issued in October.

Looking further ahead, the RBI estimated inflation will reach 2.9% for the three months ending in March, before rising to 4.0% for the quarter ending September 2026.

Low Inflation's Impact on Nominal GDP Growth

The record-low inflation observed throughout 2025 has had a clear effect on nominal GDP growth, sparking concern among investors and policymakers.

An early government estimate projects real GDP growth at 7.4% for the 2026 fiscal year, with nominal GDP growth at 8.0%. This nominal growth figure is significantly lower than the 10.1% growth rate that was forecast in the Union Budget for the same period.

Investor Concerns Mount Over Slower Earnings

"Nominal GDP growth rate slowdown is a cause of concern," said Rana Gupta, managing director of Indian Equities at Manulife Investment Management. He highlighted that corporate earnings growth has decelerated from a rate of 12-13% to between 9-10% in the 2026 fiscal year.

Speaking to CNBC, Gupta expressed an expectation that nominal GDP growth would rebound to the 10-11% range in the 2027 fiscal year as inflation continues to rise.

India's inflation rate picked up in December but remained well below the central bank's target, strengthening the case for another interest rate cut when policymakers meet in February.

Inflation Quickens But Stays Below Target

The consumer price index (CPI) increased by 1.33% from a year earlier, according to data released Monday by the Statistics Ministry. While this marks an acceleration from November's 0.71% reading, it fell short of the 1.56% median estimate from a Bloomberg economist survey.

Crucially, the inflation figure remains comfortably inside the Reserve Bank of India's (RBI) tolerance band of 2% to 6%. Food prices, which account for about half of the CPI basket, declined by 2.71% in December, compared to a 3.91% drop in the previous month.

RBI Has Room to Maneuver

The latest inflation data gives the RBI significant flexibility to support economic activity. In December, the central bank lowered its benchmark interest rate to a three-year low and indicated that further easing was possible, citing the soft inflation trend in recent months.

Looking ahead, the RBI expects inflation to stay below its 4% medium-term target until at least September. The bank projects CPI will average 2.9% for the fiscal year ending in March, though it anticipates a rise from January due to base effects.

Furthermore, the government is scheduled to review the RBI's mandate in March and may decide to keep the current 2% to 6% inflation target for another five years.