Bond Market Update

Records: The market was able to push back to the best levels since early October with the 10-yr racking up a run to see the 3.306% yield while the shorter-2-yr was back to December 08 levels. The market's run was pared as late day squaring wound through and lightened action added push to the moves. The market was given a bit of relief as the announcement of new record levels of notes were scheduled for next week went form a "known unknown to a known known." Treasury has scheduled an at-record auction of $44B 2-yrs for Monday, a record $42B 5-yrs Tuesday and record $32B 7-yrs Wednesday. Wednesday's offering has got players a little skittish as the somewhat oddball maturity hits the day before the holiday break, and the unusual architecture of the week may play in to the offering as, aside from the hole in the week, Friday's shortened session may add to apprehension as most dealer desks will be playing without a full deck as skeletal crews of junior leaguers will be running the show. Treasuries benefitted most of the session from safe-haven bids and the near-term, short dated bills saw yields pushed into negative territory last seen as the big financial world blow-up ramped up in September 08. A scarcity of bills, as the amounts being offered has fallen, helped add a "scent of desperation" as players look for a safe place to stash cash into the early part of the year and are essentially willing to pay for the privilege of lessened risk. As CNBC's Santelli pointed out the record low levels of the 6-mo bills haven't been seen since 1958, as far as his record indicate. The bills are negative looking out to the first 2 months of 2010. The curve was run well steeper as funds were reportedly forced to unwind large flattening bets, with the 2-10-yr yield spread getting swung back through the 264 level from the week's early 255. The dollar was able to surf the safety wave as well with the index bouncing back to 75.55 but backed into the close to stall near the 75.30 area. The euro was able to maintain its gains late, holding near 1.4920 while the yen was stuck near 89.00. The day ahead has an empty calendar, no data or Fed-speak, nor further testimony from spunky Timmy Geithner, so the market may droop into a downside coma as it prepares for the funky week ahead.

Mixed Business: Trade is mixed as the market shifts into shorter durations instruments with the 2-yr trotting around near the best levels since mid-December 2008. There is also talk that the dollar index bump higher was the result of a clerical error (we will assume it was a size issue as opposed to a buy-v-sell error), and if that's the case the measure should get back off to the 75.50 level fairly quickly

Ticking Off: The market continues to  see a drop with the long end leading lower and the short maturities dragging along behind as the move to short term bills conitnues to draw more interest. The market has been treading in (relatively) decent volume on the session, but the "action" will likely dry up quickly as traders pack up their toys and go home ahead of a sketchy hoilday week.

Clawing Higher: The dollar has been edging lower after riding a safety bid to better levels with trade getting some week-end unwinds in the short end of the yield curve, but that end continues to see interest. Reuters reports that the ICE exchange cancelled the trades in the dollar index over 76.50 in what may have been a fat-finger error earlier. The euro, during that timeframe of the move, was off to near the session lows as was the yen. The euro has been working its way back to better levels ticking around 1.4950, while the yen is holding the best in November against the regional currency, skating around 132.15 per. On the buck the yen continues to work around the best levels since mid-Oct as stocks slide. Gold has been pulling back from the early sell-off but will continue to be pressured by profit-taking, but otherwise supported by the week-end safety bids. Crude has been holding just off the week's lows with January 77.06 (-0.99).