India’s Record $187 Billion Borrowing Plan Puts Bond Market on Edge

Bond

Economic

Summary:

India plans to raise a record $187 billion through bond issuance in the next fiscal year, intensifying supply pressure on an already strained bond market as monetary policy support becomes increasingly limited....

Record Borrowing Signals A New Stress Test For Bonds

The government of Prime Minister Narendra Modi is preparing to issue an unprecedented volume of government bonds in the coming fiscal year, a move that risks adding significant strain to India’s domestic bond market at a time when demand is showing signs of fatigue.

Presenting the budget on February 1, Finance Minister Nirmala Sitharaman announced that New Delhi plans to borrow 17.2 trillion rupees, equivalent to about $187 billion, in the fiscal year starting April 1. This figure is around 18% higher than the revised borrowing estimate for the current year and exceeds market expectations of roughly 16.5 trillion rupees, marking the largest annual borrowing program in India’s history.

Supply Surge Meets Weakening Demand

The sharp increase in borrowing comes as government bond yields are already hovering near their highest levels in almost a year. The situation is being compounded by heavier issuance from state governments and softer demand from traditional long-term buyers such as pension funds and insurance companies. Together, these factors are amplifying concerns that the market may struggle to absorb the rising supply without a further increase in yields.

Higher borrowing costs could add pressure to India’s broader economy, particularly as the country faces elevated U.S. tariffs and diminishing room for interest rate cuts from the central bank. The interaction here is largely causal: more bond supply, combined with limited monetary easing, tends to push yields higher as investors demand greater compensation to hold government debt.

Yields At Risk Of Breaking Higher

According to Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership, the combination of heavy debt issuance and the absence of near-term rate cuts could push the benchmark 10-year government bond yield toward 7% in the coming weeks. The yield closed at around 6.70% on January 30 and had already climbed to 6.73% last week, the highest level since March 2025.

This upward drift reflects mounting supply pressure rather than a sudden deterioration in credit fundamentals, but sustained higher yields would nonetheless tighten financial conditions across the economy.

Fiscal Consolidation Progress Slows

The government has set a fiscal deficit target of 4.3% of GDP for the next fiscal year, compared with revised estimates of 4.2% and 4.4% for the current year. While this points to a gradual consolidation path, analysts argue that progress remains modest.

Upadhyay noted that the pace of fiscal tightening appears restrained, suggesting that the government is running out of room to cut spending meaningfully. This limits its ability to offset higher borrowing through sharper deficit reduction, reinforcing investor concerns about the medium-term debt trajectory.

Rollover Needs Add To Pressure

Net borrowing, after accounting for maturities, is projected at 11.7 trillion rupees in the coming fiscal year, slightly above the revised 11.3 trillion rupees for the current year. At the same time, bonds worth an estimated 5.5 trillion rupees are set to mature, nearly 70% higher than the comparable figure this year. These rollover requirements further increase gross issuance and intensify the supply challenge facing the market.

India’s bond market is entering a delicate phase where fiscal ambitions, investor appetite and monetary policy constraints intersect. The planned borrowing surge underscores the government’s commitment to sustaining growth and welfare spending, but it also raises the risk of higher yields becoming entrenched if demand does not keep pace.

How smoothly the market digests this record issuance will depend on investor confidence, the pace of state-level borrowing and any signals from the central bank regarding liquidity management. For now, the bond market is bracing for a period of heightened volatility as it absorbs the largest supply shock in years.

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Gerik

Economic

Retail Precious Metals See Unprecedented Activity

Outside Witter Coin in San Francisco, long queues monitored by security staff have become a daily sight. This is not a cultural venue or a popular restaurant, but a precious metals dealer overwhelmed by Americans eager to sell gold and silver. According to owner Seth Chandler, who has run the business since 2016, the current volume of transactions has no precedent in his experience, with both buying and selling activity surging simultaneously.

Similar scenes are playing out across the country. Pawn shops and coin dealers report a sharp rise in customers bringing gold bars, silver bullion, household silverware and broken jewelry to sell. At Witter Coin alone, customer traffic is now four to five times higher than two years ago and has nearly doubled over the past six months, forcing the business to expand staffing to cope with demand.

Record Prices Meet Household Financial Pressure

The immediate driver is price. Over the past year, gold prices have doubled, breaking above $5,000 per ounce for the first time, while silver prices have tripled. These gains have occurred as the cost of living in the United States remains elevated, pushing many households to unlock value from assets accumulated over decades.

From a financial perspective, the relationship is largely causal rather than coincidental. High prices make selling especially attractive, while inflation and economic uncertainty increase the incentive to convert dormant assets into cash. Many sellers are not only parting with family heirlooms but also combing through drawers for scrap gold and damaged jewelry that suddenly carry meaningful value.

Safe-Haven Demand Continues To Support Prices

Despite heavy retail selling, gold and silver remain firmly positioned as safe-haven assets. Investor demand typically rises during periods of concern about U.S. economic prospects, inflation or geopolitical risk. Recent trade tensions and firm policy rhetoric from U.S. President Donald Trump have reinforced these dynamics, contributing to the sharp run-up in precious metal prices.

Ole Hansen, head of commodity strategy at Saxo Bank, has noted that many investors expect gold and silver to preserve real value if equity markets correct sharply or inflation pressures re-emerge. This expectation underpins continued buying interest even as retail investors rush to realize gains.

Major financial institutions have echoed this constructive outlook. Goldman Sachs and Bank of America have forecast gold prices in the range of $5,400 to $6,000 per ounce by year-end, reinforcing bullish sentiment and helping to sustain elevated valuations.

Historical Value Sacrificed To Economics

At current price levels, dealers say it is often more profitable to melt items down for refining rather than resell them intact. Witter Coin now regularly handles not only standard bullion but also collectible coins, antique watches and vintage jewelry, with some single metal transactions reaching $1 million in value.

The economic calculus has had cultural consequences. Chandler recounted the case of a handcrafted 18-karat gold pocket watch from the 1880s, comprising more than 180 individual components, that was ultimately melted down. In a high-price environment, the decision was driven purely by financial return rather than historical preservation, illustrating how market incentives can override sentimental or cultural considerations.

Silver’s Breakout Adds Momentum

Silver has been the surprise performer. While gold’s ascent has unfolded over several years, silver’s explosive rally has caught many observers off guard. In 2025, silver prices rose more than 140 percent, the strongest annual increase since 1979, and climbed another 30 percent this year before a short-term correction.

Kelly Swisher, who runs Arlington Jewelry and Pawn in Illinois, said he now purchases tens of thousands of dollars’ worth of precious metals each week. Seth Gold, vice chairman of American Jewelry and Loan in Detroit, reported that the number of people selling silver has jumped from a few cases per week to dozens each day. Beyond safe-haven appeal, silver prices are also supported by strong industrial demand and persistent supply shortages, making the rally more structurally grounded than pure speculation.

Precious Metals As A Household Safety Net

For many American families under pressure from high living costs, selling gold and silver has delivered unexpectedly large cash inflows. These windfalls underline a broader shift in how precious metals function in the real economy. Beyond their role as investment assets, gold and silver are increasingly acting as a last-resort store of value for households navigating economic volatility.

The current wave of selling does not signal a loss of faith in precious metals. Instead, it reflects a moment where record prices intersect with household needs, turning long-held assets into immediate financial relief while investors continue to view gold and silver as essential hedges against uncertainty.

Source: CNN

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Gerik

Economic

Overnight Rates Jump Out of The Low-Rate Zone

At the turn of January to early February 2026, overnight VND interbank rates moved abruptly from below 3 percent per year to levels close to 10 percent per year. On February 2, the average overnight rate reached about 9.10 percent, while one-week rates hovered around 9.60 percent and one-month tenors stood near 7.50 percent. Some overnight transactions were reportedly matched above 10 percent, highlighting the sudden increase in short-term funding demand compared with the relatively calm conditions seen earlier.

This sharp repricing reflects how sensitive the interbank market becomes when liquidity buffers thin out, particularly during periods when large, predictable cash outflows occur simultaneously.

OMO Injections Expanded To Absorb Liquidity Stress

In response, the State Bank of Vietnam stepped up liquidity provision through open market operations. In early February sessions, the central bank offered VND 100 trillion via repo operations. Of this amount, VND 80.363 trillion was absorbed, while VND 25 trillion matured, resulting in a net injection of roughly VND 55.363 trillion. Outstanding OMO repos rose to around VND 376 trillion, broadly comparable with levels seen at the end of 2025 and the highest point in more than a year.

The OMO bid rate remained at 4.5 percent per year, substantially lower than prevailing overnight and one-week interbank rates. This pricing structure made OMO the preferred funding channel for banks facing temporary shortfalls, helping to stabilize market functioning without forcing institutions to borrow at elevated interbank rates.

Tax Payments Drain Short-Term Banking Liquidity

A key driver of the liquidity squeeze was the end-January tax payment peak. During this period, corporate funds move from commercial bank accounts to State Treasury accounts held at the central bank. Settlement takes place through the national interbank electronic payment system under existing regulatory frameworks, meaning large-scale tax payments temporarily reduce the funds available in commercial banks’ settlement balances.

System-wide Citad balances, which capture banks’ non-term deposits at the central bank including required and excess reserves, fell to around VND 268 trillion by the end of January. This represented a sharp drop from roughly VND 632 trillion at the end of December 2025, while estimated required reserves were near VND 300 trillion. When balances approach or dip below this threshold, banks tend to increase their demand for short-term funding either through the interbank market or directly from the central bank.

Tet Cash Demand Adds Additional Pressure

Seasonal factors linked to the Lunar New Year further amplified the pressure. Ahead of Tet, households and businesses typically withdraw cash to pay wages, bonuses, settle obligations and finance holiday consumption. Although cash in vaults remains a banking asset, it does not sit in accounts at the central bank and therefore cannot be used for interbank settlement. As cash withdrawals rise, the pool of immediately usable reserves shrinks, leaving banks more exposed to intraday and overnight liquidity swings.

When higher cash demand coincides with large tax-related outflows, banks often opt to hold higher precautionary reserves, intensifying short-term funding needs across the system.

Policy Signal From The Central Bank

By maintaining an OMO rate well below market levels and scaling up liquidity provision, the central bank signaled a clear intention to smooth short-term volatility rather than tolerate a prolonged tightening in money market conditions. The approach suggests that the spike in interbank rates reflects short-term liquidity frictions rather than a shift in broader monetary policy stance.

As tax flows normalize and Treasury spending returns funds to the banking system, interbank conditions are expected to ease. Until then, OMO remains the primary stabilizing tool, ensuring that temporary liquidity stress does not spill over into broader credit conditions or disrupt financial stability.

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Daniel Carter

Economic

President Donald Trump said "we are now seeking one billion dollars in damages" from Harvard University after the New York Times reported that his administration had backed off on demands for $200 million to satisfy accusations of wrongdoing by the Ivy League institution.

"This case will continue until justice is served," Trump said in a post on his Truth Social platform late Monday night. He asserted that Harvard had been "feeding a lot of 'nonsense' to the failing New York Times."

In an article earlier Monday, the Times reported that administration officials had dropped their demands for the $200 million "amid sagging approval ratings for Mr. Trump, and as he faces outrage over immigration enforcement tactics and the shooting deaths of two Americans by federal agents in Minnesota."

In his Truth Social post, Trump not specify under what authority he would seek the $1 billion. Harvard didn't immediately respond to a request for comment.

In a later post after midnight Tuesday, Trump called the Times article "completely wrong" and demanded that it be changed.

Since the beginning of his second administration, Trump and his administration have waged an aggressive campaign against Harvard and other universities over accusations of antisemitism linked in part to campus protests against Israel's military campaign in the Gaza Strip.

Conservatives have also long contended that they and their ideas have largely been frozen out of American academia by a liberal establishment, and they now have allies in the Trump administration.

Harvard sued the government twice and won a court victory in September when a federal judge ruled that the US illegally halted research funding and said the administration "used antisemitism as a smokescreen for a targeted, ideologically-motivated assault on this country's premier universities."

The administration said it would appeal that ruling, but the frozen funds have been largely restored. Unlike other Ivy League universities such as Columbia and Brown, Harvard hasn't reached a settlement with the White House.

In December, Harvard announced that its president, Alan Garber, had agreed to stay on for "an indefinite time beyond" mid-2027, extending his leadership of the oldest and richest US university.

Source: Bloomberg Europe

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Gerik

Economic

A Broad Purchase Commitment Anchors The Deal

India has agreed to buy petroleum, defence goods, electronics, pharmaceuticals, telecom products and aircraft from the United States under a newly announced trade agreement, according to a senior government official familiar with the discussions. The purchases form part of a first tranche of a broader U.S.–India trade framework that will be negotiated further in the coming months.

U.S. President Donald Trump announced on Monday that Washington would slash tariffs on Indian goods to 18% from as high as 50%. In return, India committed to halting purchases of Russian oil, lowering trade barriers and significantly expanding imports of American products. Trump said India had agreed to “buy American at a much higher level,” including energy, coal, technology, agricultural goods and other products, potentially amounting to $500 billion over time.

Reducing The Bilateral Trade Imbalance

According to the Indian official, the agreement is designed in part to narrow the trade deficit the United States runs with India. Data from India’s commerce ministry show that Indian exports to the U.S. rose 15.88% year-on-year to $85.5 billion in the January–November period, while imports from the U.S. stood at $46.08 billion. Expanding imports of U.S. energy, defence and capital goods is therefore intended to rebalance trade flows rather than disrupt India’s export momentum.

The commitment to buy U.S. products spans multiple strategic sectors and will be implemented over several years, indicating a phased approach rather than an immediate surge in imports. India has also offered market access in certain agricultural products, though specific details have not yet been disclosed.

Tariff Cuts And Sector-Specific Concessions

As part of Washington’s initial demands, India has agreed to cut tariffs on automobiles, a politically sensitive sector that has long been a point of friction in bilateral trade talks. While the current agreement addresses urgent trade imbalances, officials stressed that it represents only the first step toward a more comprehensive deal that will be negotiated in subsequent rounds.

The structure of the agreement reflects a pragmatic compromise. Lower U.S. tariffs provide immediate relief for Indian exporters, while India’s commitments on energy and defence procurement align with longer-term strategic and security interests.

Markets Respond With A Relief Rally

Financial markets reacted positively to the announcement. India’s benchmark Nifty 50 rose nearly 3% in early trading, while the rupee strengthened more than 1% to around 90.40 per dollar. The rally reflects renewed investor confidence after months of uncertainty, during which the absence of a U.S. trade deal weighed heavily on Indian assets.

The relationship between the agreement and market performance is largely causal, as reduced tariff barriers improve earnings visibility for exporters and lower the risk premium applied to Indian equities and currency markets.

A Foundation For Deeper Economic Alignment

While many operational details remain to be finalized, the scope of the initial agreement signals a meaningful shift in U.S.–India economic relations. By combining tariff relief with large-scale commitments in energy, defence and aviation, the deal goes beyond a narrow trade fix and lays the groundwork for deeper strategic alignment.

As further tranches are negotiated, the effectiveness of the agreement will depend on execution timelines, sector-specific implementation and follow-through on both sides. For now, the announcement has delivered what markets were waiting for: clarity, momentum and a credible pathway toward a more balanced and durable trade relationship between the two economies.

Source: AP

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Nathaniel Wright

Remarks of Officials

Data Interpretation

Economic

Central Bank

Forex

Daily News

The Reserve Bank of Australia (RBA) has increased its cash rate by 0.25 percentage points to 3.85%, a move widely anticipated by markets. The decision comes in response to persistent inflation and surprisingly strong growth in private sector demand.

The RBA's Monetary Policy Board noted that while some indicators suggest an easing, the labor market remains tight. This combination of renewed price pressures and a robust economy left the central bank with little choice but to continue its tightening cycle.

Updated Forecasts Signal a Hawkish Stance

Alongside the rate decision, the RBA released revised economic forecasts that paint a picture of stronger near-term growth and, crucially, higher inflation.

The upgrades to the inflation outlook are significant. The new projections imply quarterly trimmed mean inflation will run at about 0.9% for the next two quarters before settling into a 0.7% quarterly pace. According to this forecast, annual trimmed mean inflation will still be at 3.2% by the end of 2026, remaining above the RBA's target.

The central bank expects the temporary factors driving recent price spikes to fade after mid-2024. At the same time, restrictive monetary policy is projected to cool the economy, guiding inflation back toward the 2–3% target range by mid-2028, with the forecast ending at 2.6%.

Despite this long-term path, the RBA Governor expressed discomfort with inflation remaining above the 2.5% midpoint so far into the future. This sentiment underscores the bank's commitment to bringing inflation under control.

What's Driving the RBA's Thinking?

The RBA's latest move was heavily influenced by a series of strong underlying inflation reports. This data, combined with stronger-than-expected private demand and a labor market that appears to have stopped easing, convinced the board that more action was needed.

The Role of Supply Capacity

A key theme in the RBA's analysis is its assessment of the economy's supply capacity. The bank now believes capacity constraints were tighter in late 2025 than previously thought, contributing to higher inflation.

However, this analysis raises a critical question about a potential feedback loop. The RBA appears to revise its estimates of supply capacity downward each time it is surprised by a high inflation reading. While the bank maintains it doesn't react mechanically to past data, this pattern effectively links its future forecasts to recent inflation surprises. For example, recent data has led the RBA's models to suggest a higher NAIRU (the unemployment rate consistent with stable inflation), which in turn builds more inflationary pressure into its future projections.

The Labor Market Debate

While the RBA views the labor market as tight, the data presents a mixed picture. Of the 15 standard indicators the RBA tracks for labor market tightness, 11 have eased while only four have tightened. The bank appears to be placing significant weight on the few tightening indicators, particularly those from business surveys.

Long-Term Outlook and Policy Path

To achieve its inflation target, the RBA's forecasts outline a sustained period of sluggish economic growth. GDP is expected to grow at a rate below the RBA's own pessimistic 2% estimate of trend supply capacity. With the unemployment rate still rising at the end of the forecast period, it raises the possibility that inflation could eventually fall below the target if the timeline were extended. This outlook supports the view that while rates are rising now, cuts could be on the table in late 2027 or early 2028.

Other Economic Factors

Exchange Rate: The Australian dollar has appreciated noticeably since the last forecast, which should theoretically help dampen inflation. However, the RBA has downplayed this factor, attributing the currency's strength primarily to the domestic interest rate outlook rather than broader factors like the sell-off in the U.S. dollar. This may understate the disinflationary impact the exchange rate could have in the coming quarters.

Productivity and Investment: The RBA Governor has emphasized the role of the Productivity Commission in identifying policies to lift economic efficiency. However, this focus may overlook the crucial contributions of capital accumulation and private-sector innovation. The RBA's own weak forecasts for housing and business investment offer little reason for optimism on this front.

What to Expect Next from the RBA

Governor Bullock gave no explicit forward guidance on the future path of interest rates. However, with forecasts showing inflation remaining uncomfortably high even after this month's hike, further increases are clearly a possibility.

The RBA has set a low bar for another rate hike. The board will likely wait for the next quarterly inflation report before making its next move. Unless that report delivers a significant downside surprise, another rate hike in May appears likely.

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King Ten

Russia-Ukraine Conflict

Remarks of Officials

Political

Energy

Russia has resumed large-scale missile and drone strikes on Ukraine's energy infrastructure, ending a temporary halt just as a new round of peace negotiations is scheduled to begin. The attacks signal the expiration of a brief pause reportedly brokered by former U.S. President Donald Trump.

Widespread Damage in Freezing Temperatures

Early Tuesday, major cities including Kyiv, Kharkiv, Odesa, and Dnipro came under fire amid freezing conditions that saw temperatures drop below -20°C (-4°F).

In Kharkiv, the attacks left at least 820 buildings, including multi-story apartment blocks, without heating, according to Mayor Ihor Terekhov.

Ukraine’s largest private energy company, DTEK, confirmed that its thermal power plants sustained significant damage to critical equipment. Monitoring channels also reported that energy facilities in central and western Ukraine were targeted. The renewed aerial assault prompted neighboring Poland to scramble military jets as a standard precaution to secure its airspace.

Diplomatic Context: A Pause Before Talks

The escalation comes just before Ukrainian, Russian, and U.S. officials are set to resume trilateral peace talks in the United Arab Emirates on Wednesday. This follows a two-day meeting in Abu Dhabi last month.

After those previous negotiations, Donald Trump stated that Russian President Vladimir Putin had agreed to his request for a weeklong pause in strikes on Kyiv and other cities due to the severe winter weather. In a reciprocal move, Ukraine said it would refrain from its own attacks on Russian oil refineries and other key facilities.

Kremlin spokesman Dmitry Peskov confirmed on Friday that Putin had agreed to the pause until February 1. However, on Monday, Peskov gave no indication that the agreement would be extended. During this temporary halt on city strikes, Russian attacks on other targets, such as transportation infrastructure, continued.

Future Risks and Energy Sector Vulnerability

The fragility of Ukraine's energy system remains a critical concern. Maxim Timchenko, the CEO of DTEK, told Bloomberg on Monday that the company needs a ceasefire of at least two to three weeks to conduct necessary repairs and restore operations at its plants.

He warned that without a longer period of calm, he could not rule out the possibility of further blackouts this winter in Kyiv and other major urban centers.

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