(Story updated with Monday's natural gas price drivers, update on cotton prices and analyst commentary on the bond market and yuan bonds)
NEW YORK (TheStreet) -- Natural gas futures for April delivery blew past cotton to lead in commodities price action Monday amid a bout of short-covering by traders.
In the morning, cotton was the biggest price gainer, popping by its exchange limit of seven cents as demand roars, but supplies tighten -- possibly with the help of farmers withholding supplies. Cotton futures for May delivery rose 1.4 cents, or 0.7%, to settle at $2.1414 a pound Monday.
The U.S. dollar was gaining ground against the U.K. pound as the markets awaited the Bank of England's rate decision on Thursday and more information on monetary policy -- which is expected to stay unchanged for now -- amid concerns about the impact of a package of austerity measures on the U.K. The U.S. dollar was rising 0.4% at GBP 0.61718. "We retain our bearish view given the likelihood that austerity measures will prove to be a drag on growth," said UBS foreign exchange strategist Gareth Berry of the pound, in a report. Berry said that a group of UBS clients were recently net sellers of the pound. "This is the first time since our records began in 2001 where our sterling investors have shown such unity of purpose," he said. The euro was falling 0.1% against the U.S. dollar at $1.3972 after Moody's downgraded Greece's credit rating over debt default concerns and as the European Central Bank maintained its hawkish view on inflation. Meanwhile, earlier Monday, the Chinese yuan hit a 17-year high, up 0.09% to 6.5628 per dollar, after the Chinese government said it will further open the doors to its foreign exchange market.
Synthetic yuan-denominated bonds, which are bonds denominated in the Chinese currency, but settled in U.S. dollars, have recently begun gaining traction among Chinese property development issuers eager to keep debt issuance costs low while meeting market demand for the renminbi, which many believe will appreciate significantly. It's widely believed that any increase of such bond sales would be met with great receptiveness. "Reason number one is almost everyone universally believes that the yuan is undervalued," said Alan Zafran, Partner at investment advisery firm Luminous Capital Partner. "So they'd be owning a bond denominated in a currency that will be appreciating. And the perception is that the government is very strong financially. And three, scarcity value. There aren't that many around right now. The market always likes something that's scarce."
One of Monday's biggest credit market stories was Moody's downgrade of Greece by 3 notches to B1 with negative outlook, pushing the country's credit standing further into junk status. "One is there are a lot of risks on how they're actually going to implement the fiscal austerity package," said Zafran. "Two, the country's got all kinds of difficulties with collecting revenues, namely taxes. Third, there's a risk that Greece is going to do some kind of voluntary distressed exchange before 2013 and so the market's front running a concern that they may force a restructuring before 2013." Credit-default swaps on Greek bonds were trading at more than a thousand basis points on Monday. "Once you're trading at a thousand basis points on a credit default swap, it's pretty darn clear you're trading as if you're going to restructure," Zafran noted. In the U.S., the Treasury is selling $66 billion in notes and bonds this week. Treasuries were softer ahead of the auction and in the face of rising inflation concerns aggravated by high oil prices. The benchmark ten-year note dipped 6/32, pushing the yield up to 3.514% and the 30-year bond fell 14/32 with yield rising to 4.625%. >>Search for Highest Dividends by Rate or Yield
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