• Trump’s April “Liberation Day” tariffs rattled the bond market and triggered a sharp selloff, forcing the administration to recalibrate its approach. Since then, officials have been carefully shaping both policy and messaging to avoid a repeat, though investors caution that the détente (the ease of tension) feels temporary rather than secure.
• The fragility became clear on Nov. 5, when Treasury signaled it might issue more long-dated debt on the same day the Supreme Court began hearing challenges to Trump’s tariff program. Benchmark 10-year yields jumped more than 6 bps, reflecting renewed anxiety about both higher future supply and uncertainty over a key source of government revenue.
• Already uneasy about persistent federal deficits, investors feared that additional long-term issuance would drive yields higher and increase borrowing costs. At the same time, the legal questions surrounding tariffs raised concerns about how reliably the government could service its US$30.0Tn market-held debt.
• Analysts described the moment as a “reality check,” highlighting an ongoing standoff between markets and policymakers. Beneath calm headline moves, investors are intensely focused on whether Washington can rein in deficits, or whether rising yields will be used to force fiscal discipline instead.
• Investors warn that multiple shock risks could reignite volatility: tariff-driven price pressures, a bursting AI-driven asset bubble, or a Federal Reserve forced into a hawkish pivot if inflation resurges. Any of these could quickly bring “bond vigilantes” back into action.
• Despite official reassurances, history shows bond markets can punish perceived fiscal excess. April’s surge in yields, the steepest weekly increase since 2001, pushed the administration to soften tariffs and demonstrated how quickly markets can reassert discipline. Yields have since retreated, volatility has fallen, and surface calm has returned. But investors emphasize that vigilance remains high, viewing today’s environment as a fragile balance rather than a durable peace.
• Part of the current stability reflects supportive conditions: AI-linked investment has buoyed growth, the Fed has shifted toward easing, and Treasury has shown reluctance to flood markets with longer-dated paper, signaling sensitivity to yield pressures.
• Ultimately, markets view today’s calm as conditional. The administration may have delayed a confrontation with bond vigilantes, but with large structural deficits and ongoing policy uncertainty, many investors believe the risk of renewed stress remains very much alive.

(Source: Reuters)

• In its December 2025 Quarterly Monetary Policy Report, the Bank of Jamaica (BOJ) communicated that it revised its inflation outlook upwards, amid an adverse agricultural supply shock from Hurricane Melissa, second-round effects on services (household maintenance, transport, energy, personal care) and processed food inflation, alongside stronger domestic demand tied to rebuilding and reconstruction activity.
• Average headline inflation is projected to rise to 7.4% over December 2025–September 2027, up from 4.9% over the previous eight quarters, breaching the Bank of Jamaica’s (BOJ’s) target range over the next year and peaking at 11.5% in the June 2026 quarter before easing back within target toward the end of the near term as supply conditions improve. The Comparative Core Inflation Forecasts (CPIAF) is similarly forecast to average 6.1%, higher than the 4.6% average over the prior two years.
• Imported inflation, notably from grains and oils, is expected to remain generally stable, while the first-round impact of higher U.S. tariffs is projected to be marginal, adding only approximately 0.1 percentage point on average to domestic inflation over the next eight quarters.
• Inflation expectations are projected to rise from 5.8% in the September survey to above the upper bound of the target range and remain elevated in the near term. The output gap is forecast to be negative in December 2025–March 2026, then turn positive as reconstruction, supported by an expansionary fiscal stance, gains momentum, with the gap closing by March 2029.
• S. demand is expected to soften with its output gap turning negative from June 2026 as oil prices are projected to decline by about 1.0% QoQ on average, U.S. LNG prices set to rise gradually, and freight costs have fallen sharply (-41.3% by September 2025). These are partly offsetting inflationary pressures amid reduced U.S. import demand due to higher tariffs.

(Source: Bank of Jamaica)

• Following damage assessments and the incorporation of the impact of Hurricane Melissa, which took time to assess, and following the economic and fiscal outlook in the government's budget update in December, S&P believes the likelihood of a rating upgrade for Jamaica within 12 months has become more remote.
• As a result, on December 18, 2025, it revised the outlook on Jamaica’s ratings to stable from positive. Following this, on December 22, 2025, TJH’s outlook was also revised downwards to stable from positive, reflecting that the sovereign continues to constrain TJH's credit profile. This is due to the project's significant exposure to regulatory risks and its inherent dependence on local economic conditions. The analysis incorporates stress testing, including scenarios involving a 100.0% currency depreciation, a 10.0% GDP contraction and a doubling of inflation to assess TJH's resilience.
• While a six-month cash-funded debt service reserve account provides a limited buffer, the assessment indicates that cash flows would likely be insufficient to fully cover debt payments in a sovereign default scenario. A sovereign stress could also restrict future tariff increases, potentially affecting the project's cash flow. Its 'a-' stand-alone credit profile (SACP) remains unchanged, reflecting TJH’s current operational strengths.
• The stable outlook on TJH aligns with the sovereign outlook, reflecting the view that TJH's performance is linked to Jamaica's broader economic stability. A gradual recovery in traffic volumes is anticipated following the disruption caused by Hurricane Melissa, driven by the reactivation of commercial activity and tourism throughout 2026.
• Beyond 2026, traffic growth is expected to track similar to Jamaica's GDP growth of approximately 2.0% per year, supporting the projection of a minimum DSCR consistently near 3.0x.

(Source: S&P Capital IQ)

• The Central Bank of The Bahamas, in its Monthly Economic and Financial Developments Report for November, reported a notable contraction in the country’s external reserves, reflecting heightened net foreign currency outflows through both the public and private sectors, even as domestic economic activity continued to expand at a moderated pace.
• According to the Central Bank, external reserves fell by $62.4Mn during November, compared with a $4.0Mn reduction in the same month of 2024. The decline was driven by a reversal in foreign currency flows between the Central Bank, commercial banks and their customers, alongside increased public sector-related outflows. Foreign currency transactions between the Central Bank and commercial banks shifted to a net outflow of $38.0Mn, from a net inflow of $9.0Mn a year earlier. At the same time, commercial banks’ transactions with their customers reversed to a net sale of $23.2Mn, compared with a net purchase of $20.1Mn in November 2024. In addition, net foreign currency outflows through the public sector increased to $36.4Mn, up from $11.9Mn in the prior year.
• The Central Bank also reported higher foreign currency sales under the exchange control regime. Provisional data indicated that foreign currency sales for current account transactions increased by $2.5Mn to $593.2Mn in November, relative to the same period last year. This increase was largely attributed to higher outflows for “other” current account transactions, primarily reflecting increased credit and debit card usage, which rose by $53.5Mn, as well as a $2.4Mn increase in transfer payments. These developments were partially offset by reduced outflows for factor income payments, which declined by $24.3Mn, along with lower payments for oil imports ($18.8Mn), non-oil imports ($8.4Mn), and travel-related expenses ($1.9Mn).
• Beyond the external sector, the Central Bank noted that economic activity during November continued to expand, though at a tempered pace relative to 2024, as key indicators converged closer to their medium-term potential. Tourism activity remained supportive of growth, with continued strength in the cruise segment. However, performance in the higher-value stopover segment remained constrained by limited accommodation capacity and softer demand from the United States market. As a result, tourism inflows, while still positive, grew at a more moderate rate.
• Labour market conditions showed further improvement, with the unemployment rate declining in the second quarter of 2025, supported by a reduction in the number of unemployed persons. Meanwhile, inflationary pressures eased, as average consumer prices recorded a marginal decline over the 12 months to July 2025, reversing the upward trend observed over the same period last year. This was mainly attributed to lower fuel and energy-related costs
• The Central Bank reported that banking sector liquidity increased further in November, despite domestic credit expansion outpacing deposit growth. Excess reserves rose by $44.6Mn to $1.95Bn, while excess liquid assets increased by $53.3Mn to $3.17Bn, underscoring the continued accommodative monetary environment. In its November report, the Central Bank concluded that while domestic economic conditions remain stable and supportive of growth, external sector pressures intensified during the month, underscoring the importance of continued monitoring of foreign currency flows as the economy transitions toward more sustainable, medium-term growth levels.

(Source: Eyewitness News)

• The Dominican government is preparing a set of administrative tax measures to boost revenue collection starting next year, without submitting new reforms to the National Congress. Finance Minister Magín Díaz explained that the strategy focuses on improving tax equity and ensuring fair competition by making the existing tax system more efficient through mechanisms already available to the Executive Branch.
• The measures, led mainly by the General Directorate of Internal Taxes (DGII) and the General Directorate of Customs, include expanding electronic invoicing, strengthening product traceability for alcohol and cigarettes, and reinforcing tax controls linked to new technologies. According to Díaz, these actions help reduce tax evasion and generate greater confidence in the private sector by ensuring all economic actors operate under the same rules.
• The minister acknowledged that while administrative measures are essential, they are not sufficient on their own to address structural fiscal deficits. He noted that tax regulations must be constantly updated, as taxpayers quickly adapt to changes. Once administrative management is further strengthened, the government could evaluate adjustments in other areas, including selective taxes that have not been updated in recent years.
• On the economic front, Díaz dismissed concerns about a currency crisis, highlighting that international reserves exceed US$14 billion, allowing the Central Bank to manage exchange rate volatility.
• He also emphasised strong coordination among state institutions on fiscal and monetary decisions, efforts to reactivate key sectors such as construction, and a significant reduction in fuel subsidies, supported by lower international oil prices. Through these actions, the government aims to balance public finances and maintain economic stability without introducing new legal tax reforms for now.

(Source: Dominican Today)

• The United States (U.S.) economy expanded in the third quarter of 2025 (Q3 2025) at the fastest pace in two years, bolstered by resilient consumer and business spending and calmer trade policies. Inflation-adjusted gross domestic product (GDP), which measures the value of goods and services produced in the U.S., increased at a 4.3% annualised pace, a Bureau of Economic Analysis (BEA) report showed on Tuesday, December 23, 2025. This was higher than all but one forecast in a Bloomberg survey and followed 3.8% growth in the prior period.
• The BEA was originally due to publish an advance estimate of GDP on October 30th; however, the report was cancelled due to the government shutdown. The agency typically releases three estimates of quarterly growth, fine-tuning its projections as more data comes in, but it will only release two for the period leading up to the longest shutdown on record.
• The delayed report shows the economy maintained momentum through the middle of the year as consumers powered ahead and the most punitive of President Donald Trump’s tariffs were rolled back. While the shutdown is expected to weigh on Q4 growth, economists expect a modest rebound in 2026 when households receive tax refunds and an anticipated Supreme Court ruling may strike down Trump’s sweeping global tariffs.
• The Federal Reserve’s latest projections echo that sentiment, with Chair Jerome Powell citing supportive fiscal policy, spending on artificial intelligence (AI) data centres, and continued household consumption as reasons for the central bank’s forecast for faster growth next year. Policymakers are projecting just one interest-rate cut in 2026 after three straight reductions to end this year.
• Part of the reason for some officials’ hesitation to lower borrowing costs much more is that inflation remains above their 2% target. The report showed the Fed’s preferred inflation metric, the personal consumption expenditures price index, excluding food and energy, rose 2.9% in Q3. Further, the BEA has yet to reschedule the October or November monthly PCE data.
• Despite some evidence of softer consumer spending in Q4, “the floor for the economy is still strong,” said Ben Ayers, a senior economist at Nationwide. “We are optimistic that the economy will accelerate in 2026.” That said, data later Tuesday showed that U.S. consumer confidence declined for a fifth consecutive month in December, matching the longest streak since 2008 and reflecting ongoing concerns about inflation, tariffs and politics.

(Source: Bloomberg)

• China has launched a trade dispute with India over solar cells, solar modules and information technology (IT) goods, requesting dispute consultations on the matter, the World Trade Organisation (WTO) said on Tuesday, December 23, 2025. China had claimed that these support measures and incentives infringe rules pertaining to the WTO's General Agreement on Tariffs and Trade 1994, Agreement on Subsidies and Countervailing Measures, and Agreement on Trade-Related Investment Measures.
• It has also raised issues over the conditions that govern the eligibility for, and disbursement of incentives under, the Production Linked Incentive Scheme: National Programme on High Efficiency Solar PV Modules. The incentives provided under the Solar Module Programme are conditioned on several criteria, including a prescribed minimum local value addition requirement. India has taken these measures to boost domestic manufacturing and reduce dependence on imported goods.
• Seeking consultation is the first step of the dispute settlement process as per WTO rules. If the consultations requested with India do not result in a satisfactory solution, the EU can request that the WTO set up a panel in the case to rule on the issue raised. This came less than a week after India imposed anti-dumping duties on cold-rolled steel imports from China for five years to protect its domestic industry.
• China is the second-largest trading partner of India. In the last fiscal year, India's exports to China contracted 14.5 per cent to US$14.25Bn against US$16.66Bn in 2023-2024. The imports, however, rose by 11.52% to US$113.45Bn from US$101.73Bn. India's trade deficit with China widened to US$99.2Bn during 2024-25.

(Sources: Reuters & The Economic Times)

• China will impose provisional duties of up to 42.7% on certain dairy products imported from the European Union (EU) from Tuesday, December 23, 2025, after concluding the first phase of an anti-subsidy investigation widely seen as retaliation for the bloc’s electric vehicle tariffs.
• The tariffs will range from 21.9% to 42.7%, although most companies will pay about 30%, and target products such as milk and cheese, including protected origin brands such as French Roquefort and Italian Gorgonzola.
• The European Commission attacked the decision as “unjustified and unwarranted” and expressed that it was examining it and would provide comments to the Chinese authorities. “The commission’s assessment is that the investigation is based on questionable allegations and insufficient evidence, and that the measures are therefore unjustified and unwarranted,” the spokesperson Olof Gill said.
• Trade tensions with the EU erupted in 2023 when the European Commission, which oversees the bloc's trade policy, launched an anti-subsidy investigation into Chinese-made electric vehicles. Beijing has since investigated and imposed tariffs on imports of EU brandy, pork and now dairy, measures seen as retaliatory. However, as it did with pork, Beijing has reduced or limited the impact of its tariffs several times, including partly sparing major cognac producers after its brandy probe.
• China's Ministry of Commerce said negotiations over the bloc's EV tariffs resumed this month; however, the talks were scheduled to end last week, and there has been no announcement since. A senior European diplomat in Beijing said last week that major issues remained between the two sides.
• China imported US$589Mn (£438m) of dairy products covered by the current investigation in 2024, similar to 2023 values. China’s Ministry of Commerce said in a statement it had found evidence that EU dairy imports were subsidised and hurting Chinese producers. The decision is likely to be welcomed by Chinese producers who are grappling with a glut of milk and falling prices as declining birth rates and more cost-conscious consumers weigh on demand. China, the world's third-largest milk producer, urged producers last year to rein in output and cull older and less productive cows.

(Sources: Reuters and The Guardian)

• British households saved less in the third quarter of 2025 (Q3 2025) as they felt the hit from higher taxes but still increased their spending, according to official data, which confirmed a slowdown in the broader economy. Gross domestic product grew by only 0.1%, according to the Office for National Statistics (ONS), in line with its initial estimate and 1.3% higher than Q3 2024. However, growth in Q2 was revised down to 0.2% from a previous estimate of 0.3%.
• The ONS noted that the saving ratio dropped by 0.7 percentage points to 9.5%, its lowest in over a year, as real household disposable incomes took a hit from tax increases, which outweighed income growth and inflation. Nevertheless, household consumption grew by 0.3% from Q2, when it showed no growth. This was the fastest quarter-on-quarter increase in a year.
• Finance minister Rachel Reeves increased taxes in her first budget in 2024, including on some forms of wealth income, although most of the burden fell on employers rather than individuals. Britain grew by the most among the Group of Seven large, advanced economies in the first half of 2025 (H1 2025), alongside Japan. However, it has slowed sharply since then, in part due to months of uncertainty about possible tax increases in Reeves' second budget, which she announced on November 26th.
• Last week, the Bank of England (BoE) expressed that it expected zero GDP growth in Q4 2025, but it thought that the underlying pace of economic growth was around 0.2% per quarter. "The breakdown in growth in Q3 was a bit less reliant on government spending than in the first estimate," Alex Kerr, UK economist at Capital Economics, said. However, the overall data confirmed the slowdown in the economy after its strong start to 2025, and Capital expected only 1.0% growth next year, down from 1.4% this year, Kerr said.

(Source: Reuters)

• On December 18th, 2025, the Bank of Jamaica’s (BOJ’s) Monetary Policy Committee (MPC) announced it will continue holding the policy rate at 5.75% and remain proactive in preserving relative stability in the foreign exchange market.
• The hold reflected the MPC’s concerns that the impact of Hurricane Melissa on the economy was more pronounced than initially anticipated, creating greater inflation risks. More recent estimates indicate that damage to infrastructure is in excess of 40% of gross domestic product (GDP), above the previous estimate of 30%. Meanwhile, the agriculture sector experienced damage amounting to approximately 50% of the sector’s 2024 GDP. The larger damage means that the initial impact on agriculture and electricity prices, as well as the later effect on the prices of other goods and services (the second-round impact) of this initial jump, is likely to be stronger and more persistent than initially anticipated.
• Consequently, Annual headline inflation is expected to rise sharply over the next few months from 4.4% in November 2025 and remain elevated for the near-term. In this context, inflation will likely exceed the Bank’s inflation target of 4.0%-6.0% by early 2026. This rise primarily reflects the hurricane’s impact on the major food-producing parishes and disruptions to supply chains (particularly in energy and agriculture), which monetary policy cannot affect.
• Core inflation, which excludes the prices of agricultural food products and fuel from the consumer price index (CPI), will also rise over the next twelve months, reflecting another wave of price increases for other goods and services (e.g. those related to home repairs, meals from restaurants and personal care items) through second-round effects. The higher core inflation will be supported by the anticipated surge in overall spending in the context of the rebuilding efforts, financed largely by external financing to the private and public sectors.
• The Bank is therefore positioning monetary policy to minimise such effects and to constrain increases in businesses’ inflation expectations. In the aftermath of the hurricane, Parliament has suspended the fiscal rule for an initial period of one year. This will support the public sector’s ability to increase spending for the recovery and relief effort. For the central government in particular, larger fiscal deficits are projected over the next three fiscal years, compared with their previous projection.
• The risks to the inflation outlook are skewed to the upside, with a greater likelihood of inflation being above projections. Higher inflation could result from higher-than-expected demand amidst the reconstruction efforts and from increased inflation expectations. A more protracted recovery in the agriculture sector and more prolonged disruptions to supply chains could worsen food price increases. There could also be long-term damage in specific industries, which could slow the improvement in the production and availability of supplies. On the downside, inflation could be lower due to a slower-than-anticipated recovery in domestic demand associated with income loss.

(Source: BOJ)