With no more than eight trading sessions remaining for 2009 the New Year really isn't very far away at all. And with an increasing number of onlookers observing that yields will rise next year, investors are slowly but surely starting to bake that view into the cake. The reversal in 10-year U.S. yields from a Dubai-inspired 3.16% to a pre-FOMC 3.61% took place in under three weeks and confirms the worries bubbling away under the surface many fixed income investors seem to be harboring.

While the Fed managed to portray within its statement this week that the economy faces a remarkably inflation friendly environment, the word is out that 2010 will be a year in which corporate and government funding costs will very likely increase. The latest to admit to turning around the tanker is manager at the world's biggest bond fund, Pimco's Bill Gross. Today it was reported that he has lightened the boatload of government debt and futures he's carrying predicting lower yields and flatter curves instead trading it in for cash. He now hoards the largest proportion of cash since before the Lehman's crisis.

I'm actually a little surprised to see less interest rate fallout in early trading on this news. However, the tone did change in a heartbeat at some point this morning with yields swinging from down on the day to suddenly up. And since the data calendar is empty, I can only conclude that the Gross misconduct is probably responsible.

Eurodollar futures - Early gains were traded in as far as Eurodollar trading goes. The June and September contracts have lost two basis points in price while contracts expiring thereafter have added three basis points in yield. The December 2010 contract now reflects an implied yield of 1.19%.  March t-notes also gave up early gains and are currently down five ticks to yield 3.50%.

European short futures - have maintained a positive tone during the day. An earlier boost to confidence failed to shift yields when the IFO released its final business confidence survey of German executives for this year. The current and future conditions components indicate a strong first quarter for 2010. March bunds remain higher on the day by a mere whisker at 123.45 as yields tread water at 3.13%.

British interest rate futures - Thin trading in London on account of a snowfall keeping investors out of the City has allowed for an exaggerated upwards movement as investors bought short sterling. The Bank of England reported a rise in mortgage approvals in November, which typically wouldn't feed a buying frenzy for rate futures. Nor would news of a nasty public sector borrowing deficit the size of Wembley stadium usually drive yields lower. Short-covering before traders left for the weekend saw contracts rise as much as seven basis points on the day leaving the December 2010 yielding 1.75%. March gilts were sharply firmer at 116.34 sending yields at 10-year maturities down seven basis points to 3.78%.   

Australian rate futures -Once again 10-year yields fell sharply as traders continue to test the downside limit to yields if the RBA has indeed stopped raising rates. The 10-year slipped in yield some 13 basis points to yield 3.34% today. Meanwhile 90-day bills ran out of room to rally and in order to continue to ever-higher ground we'll need a fresh batch of data to confirm that the RBA can afford to do nothing.

Canada's 90-day BA's are a little weaker following a mixed report for October sales this morning. A gain for auto sales was offset by sales of food and drinks and advanced just 0.3% compared to an expected 0.5% gain. In addition September's data was revised down. The report carried less weight than today's rise for commodity prices, which helped spur investor confidence in the local dollar and economic prospects. Positive reports from Research in Motion also helped boost stocks and send rate futures marginally lower in price. The 10-year Canadian government bond yield is higher by one basis point at 3.37% this morning.