A crucial Friday for markets

US rate has shot up, settling at the highest yield of the last five years: 5.30 per cent. This escalation has increased investors' fears. Global bonds and stocks have adjusted their values downwardly again. In Argentina, swap papers lost more than 2 per cent. Bonds of other emerging countries have left on their way all they had earned in the year. Wall Street retreated almost 1 per cent, like European bourses. San Pablo slid 1.86 per cent and Buenos Aires Stock Exchange, 1.69 per cent. To make matters worse, Alan Greenspan stated yesterday that China's and third-world countries' growth would not last forever. All the same, we should wait till Friday, when US inflation data will determine the trend.

US rates have touched the highest level of the last five years, pushing global bonds and stocks down.

US Treasury 10-year bond's yield went as far as to touch 5.30 per cent, though it closed at 5.29 per cent. This rate is used as benchmark by companies and it's crucial for emerging countries' papers.

Such yield is also a burden for investors, since if the safest bonds of the world yield around 5.30 per cent annual, when they buy a Latin American bond or stock, they have to earn more to offset the risk.

Bonds

30-year bond now yields 5.41 per cent annual, the highest rate since 2004. Such yield has risen because investors fear that current global demand pressuring inflation may trigger a new interest rate hike across the world.

Only one week ago, 80 per cent of investors was betting that US was going to lower its rates before the end of the year. Now, most of them believes that rates won't be cut and only a few forecast a rise.

"If this is not a falling market, I wonder which one actually is," Michael Pond, bond strategist of Barclays Capital, stated when referring to rebound of US 10-year bond yield from March minimum. Rate hike caused dollar to rise against euro, which quoted at $1.3301.

The effect of North American papers was devastating. Emerging countries' bonds have lost all they had earned in the year, by sliding 0.73 per cent on average. Till the end of May, these papers were offering 2-per cent profits to investors. In more than a week, they lost everything, for fear of rate hike. To cap it all, Alan Greenspan couldn't have chosen a worst day to make his forecasts.

Drops

Bourses sped up their declines. San Pablo crumbled 1.86 per cent and European ones, almost 1 per cent. Wall Street was also lashed: Dow Jones ended 0.97 per cent down, Standard & Poor's 500 plummeted 1.07 per cent and NASDAQ, 0.87 per cent.

Out of the 90 stocks of S&P financial sector's index, 84 plunged and Citigroup bank's benchmark bonds collapsed 1.6 per cent, while JP Morgan Chase's fell 2.1 per cent.

All hopes are pinned on Friday. If May inflation hits lower than expected, markets may react and bond rate may calm down.