Strap In: The market got knocked off as trade shifts ahead of next week's record sized auctions and bonds will be in for a bumpy ride. Trade may be pretty skittish (make that "will be") as there will be more of the "early" year-end activity, global issuance should continue to come in, although volumes will trickle down significantly, while the key question how will the auctions will go, especially the longer 5-and-7-yrs in a what is cut up to be a turkey of a week. Do not even get us started on the data, with a little something for everyone, from Q3 GDP to a run of housing reports. The week saw the return of negative rates on shorter dated instruments as players crowded in in the "risk on" trade, looking for safety into year end in the face of lightened supply. The "good cop, bad cop" on that is that while the last such move to negative rates came amidst market crazies back in September through December, in the current situation its more of a straight supply and demand issue. The curve was unwound from 266.6 on the 2-10-yr late to trade back flatter at 263.3, now but remains near the steepest levels of the month. The dollar was able to end the week on high note, with the index near the best levels since 11/06 the euro was offered early but was able to spin back from the 1.48 point to hang near 1.4850. The yen has stayed pretty much pegged to the 89.00 area over the past 2 sessions, while pulling to near the month's best levels on the euro. The week ahead has a run of data along with the auctions, which will see $44B 2-yrs hit Monday, record $42B 5-yrs Tuesday and the (apprehension) record $32B Wednesday. So far only that chatty Bullard from SL is on deck for the Fed Sunday night. Monday has existing home sales (10) and an early Chicago Fed report that may add some to trade. Along with the 2-yr auction the market will also be swallowing $30B 3-mos and $31B 6-mos.

Bid: The dollar managed to go out with a bid with the index at the best level on a closing basis since 11/06. The session saw some safety buying early, with the euro grinding back through the session, getting caught near 1.4850 for the latter part of the day while backing off to get just 132 yen. The yen was a range bound on the buck, ticking around near 88.90, while still holding near the best levels since mid-October. Gold was able to pull back to near the record highs, trading just shy of the 1150 level with spot now 1149.00 (+4.40), crude was on offer and headed out at 77.47 (-0.58) on the January.

WSJ on Negative Short Rates: this means investors are paying the government to keep the money safe, the equivalent of stuffing cash under the mattress, rather than putting it to profitable use. The financial system isn't really supposed to work that way, and the fact that it's happening now, has some thinking about the last time it happened. That was in late 2008, after the collapse of Lehman Brothers roiled global markets. Could something similar be going on right now? We don't think so. And neither does Eric Lascelles, chief economics and rates strategist at TD Securities: “The entire short end of the U.S. curve has experienced a remarkable bid recently, with the 2-year yield down to its cyclical low. One motivation for the bid in bills is that the market continues to price out the prospect of rate hiking by the Fed, motivated by recent Bernanke comments. Another motivation is that the size of the cash management bills program has been winnowed back severely, creating what may be translating into a shortage of available product. Even with all of this, however, the magnitude of the recent move remains somewhat surprising.”-- The fact is most measures of worry are not indicating any, with Libor continuously being set at record lows (0.262%), with the action being a move of lack of supply in the short dated stuff and a funciton of year-end activity (Emphasis added)

Sliding Harder: The market is getting added drag as players look out to next week's auctions and the ongoing onslaught of corporate issuance. The short end continues to show some fear buying with the 2-yr having bumped to see the lowest yield since last December, trading to 0.666%. The market will likely see some further squaring, taking the 3.38% level within the session. The 7-yr continues to feel the heat with concerns over the weirdly placed auction, hitting the day before the holiday hole and 2 days before what will almost certainly a "black Friday" on sparsely populated dealers' desks.

Issues: ICICI Bank to sell $750M 5-yrs (est +337.5) - Reuters

Quiet: Trade remains quietly lower while the curve sees some late week unwinding taking it flatter. The market is getting into its late-Friday auto-pilot mode, with size dried up and players just looking to square and get out. The 2-10-yr yield spread is running near 263.9 from a recent push to 263.

Fed-Up: The Fed will buy agencies in the 2011 to 2013 maturity range Monday

Issues: CDP Financial launched $2B 5-yrs (est +83), $1.75B 10-yr (est +105) and $1.25B 30-yrs (est +130)

Ameritrade launched $250M 3-yrs (est +175), $500M 5-yrs (est +200) and $500M 10-yrs (est +225) -Reuters/IFR

Agencies: Freddie will sell $2B 3-mos and $1B 6-mos Monday

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).

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.

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

Leaning Higher: Bonds have been mixed with the long end lagging as the safety players continue to pile into the shorter maturities as they look to stash cash into the year end. The longer durations are getting less play as the market looks out to the uncertainty of the mid-term with the potential governmental meddling into the Fed's operations adding to concerns. The 10-yr is back into a holding pattern near the 3.33% yield level, while the 2-yr has been playing in the late 2008 area as it strengthens on year end issues, while stocks slide. The curve has been steepened to over 266 on the 2-10-yr yield spread, with the next stop near 267.5. The dollar has been bid with the index holding near 75.75 as the market tucks into safety in front of year-end. The euro tumbled and fell back to near the 1.48 area as positions were shifted out of riskier plays, taking the regional currency back off to near the lowest since 11/5, while falling back to get just under 132 per yen. The yen has held in to its better part of the range after a general boost on safety concerns and the heels of the BOJ policy stand-off. There is no data and the Fed is muzzled for the day

Treasuries were flat while equities are headed towards a lower open. The yen was slightly bid following an announcement from the Japanese government that the economy is back in deflation for the first time since 2006. The BoJ also kept interest rates near zero and upgraded its economic assessment. The dollar is stronger as higher-yielding currencies looked weaker (Australian and N. Zealand dollar). We note the Australian dollar has been a popular buying target for carry trades.  On Monday, Treasury will offer $30 bln in 3-month Bills, $31 bln in 6-month Bills and $44 bln in 2-year Notes. The 2-10-year yield has widened to 266 from yesterday afternoon's 264 level.

Table of overnight activity in the financial markets.

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.

Treasuries were little changed following commentary from OECD that indicated the FED and ECB won't need to start raising interest rates until 2010 due to low inflation and "economic slack". Equities are seen opening lower. Treasury is scheduled to announce how much it plans to raise in three note auctions next week. The dollar and yen are stronger while the euro has retreated below 1.49. Initial claims data for the week of 11/14 is due at 08:30; consensus calls for 504K vs 502K prior. The 2-10-year yield spread is 262 vs yesterday afternoon's 263 level.