There's been plenty of evidence in the recent weeks that, as year-end approaches, investors are pulling out of bonds like never before. We've seen this in some of the flows data, with the data on bond funds showing week-by-week withdrawals out of both sovereign and corporate paper. There’s also been data overnight showing that Japanese banks are selling bonds for the first time this year (up to end Oct.) according to data from Bank of America ML. The other interesting point is what's been happening to gold, with global gold ETF holdings moving to a record high in the early part of the week, even though the gold price itself has been relatively steady during the month. Equities have also been a beneficiary, US stocks up over 5% and also outperforming many emerging indices. Within all of this, there is a great weight of expectation for the US economy to perform well in 2011 and this looks to be a requirement if the current trends are to continue.

More European ratings pressure. After last week's multi-notch Ireland downgrade and warnings on the US, now Moody’s has Portugal in its sights, with the announcement overnight that itsA1 long-term and Prime-1 short-term government bond ratings were being reviewed for a possible downgrade. Moody’s cites uncertainties concerning Portugal’s longer-term economic viability (made worse in its view by fiscal austerity), worries about Portugal’s access to capital markets at a reasonable price and fears that the government’s debt profile could be adversely affected should it be required to provide support for the banking sector. By themselves, these pronouncements are not always big market events, often following rather than leading them, but cumulatively, they may not help euro sentiment if they continue in the new year at the same pace.

Sterling burdened by borrowing data. The November data on public sector borrowing was fairly disappointing, the monthly borrowing requirement -at GBP 22.8bn -proving to be the biggest on record. After the initial dip, cable has recovered slightly to above 1.55, but it continued to underperform other currencies on a day when the dollar has lost ground. For instance, EUR/GBP is back at 0.85, and GBP/AUD is testing 1.55, a new 25yr low. With most European bourses up by 1% today, the dollar has experienced some selling pressure.

Ireland hoping for best and preparing for worst. The Irish parliament this week approved a piece of legislation which gives the government far-reaching powers over the banking sector. The legislation gives the government the power to force losses on both junior and also senior bond holders. The key question is whether it would use it. It's an issue worth watching because, if it does cross the barrier, then this could set a precedent for others.