Katet's Saddle is a historical artifact that has both a Mhoragian pony's spirit and the demon that possessed said pony prior to its death trapped within it. A Mhoragian halfling sitting on the saddle can on occasion coax the pony's visible spirit out (takes on a ghost-like form) for a short time, though this does inherently carry risk of injury or death by the demon in the saddle.
On day 14 of the month of Koaratos in the year 5118, Goblyn traded Katet's Saddle to The Far Market in exchange for the key to Daukhera Darkflorr's "A History of Ancient Sorcery" tome. When asked by The Far Market how she came by the saddle, Goblyn made clear that it was none of their business. At the time of the exchange, the saddle's appearance was as follows:
a preternaturally shiny saddle of black leather >l saddle Wrought with a thick, supple leather the color of a midnight black sky, the saddle is tastefully festooned with a handful of fancifully carved wooden arrowheads. The left-front side of the saddle is in shreds, as if something took a hefty swipe at the leather and clawed right through it, and it is around this area that the preternatural shine imbued into the leather is most apparent, a veritable disturbance in the air seeming to waft off of it there.
Shortly after the Undead War, a demon possessed Katet, one of the Mhoragian ponies, taking her on a short-lived but bloody rampage that ended with the death of the pony. The demon had bound itself to the pony's spirit, and the means by which Katet was killed unfortunately did not result in releasing the demon; instead, the demon remained bound to the pony's now-dead spirit. No one wished to see Katet's spirit in what they believed would be eternal torment; an attempt was made to cleave the two by transferring the demon's anchor from the pony's spirit to the pony's saddle. The attempt was partially successful -- the demon was indeed anchored to the saddle; but the pony's spirit remained bound to the demon, and, therefore, now indirectly bound to the saddle as well. Further known attempts (up until the time of its "loss", see below) to set the pony's spirit free failed, some tragically.
The saddle was passed down through Mhoragian hands for some time, and generous offers by academics, sorcerers, and others interested in studying the saddle were repeatedly turned down. However, the saddle was eventually inherited by a young man who was beyond frightened of demons, and rather than have the saddle anywhere near him -- and considering it poor luck to benefit off of anything carrying the "dark spirit" of a demon -- he gifted it to a traveling tinkerer. The tinkerer, not knowing what had fallen into her hands, sold it to a militiaman. The militiaman's horse would not allow the saddle to stay put on its back, however, so he sold it to one of his fellows. It was bought and sold several times henceforth, always with the same results, until at last it was sold to a sylvan traveler of little note. Thereafter, no record of it could be found; it was considered lost but not necessarily destroyed. After the Horse War, keen interest in finding it became widespread for a time, though in more recent times, as belief in its surviving the ages had dwindled, it was only an obsession for a handful of halflings and historians.