It was only recently that 2 Year Treasury Notes were considered money-equivalent, "high quality collateral." Then the infamous Fed "dots" Snafu took place, and suddenly bond investors started being worried about duration risk on paper that matures smack in the middle of 2016, a year in which some Fed members see a Fed Funds rate as high as 4%+, which of course means that 2 year paper issued at par would be trading far, far lower. Sure enough, such concerns have materialized in the auctions of recent 2 Year paper, the most recent of which was concluded moments ago, pricing at 0.447% - in line with the When Issued but well above the TTM average of 0.35%, although a trace lower than the near "freak out" 0.469% , and highest since May of 2011, recorded last month right after the March FOMC press conference where Yellen had to scramble to preserve the rigged and manipulated market together.
Additionally, and most notably, the Primary Dealers' take down of 57.68% was the highest since May of 2013, surging from the 37.5% in March, which also meant that Indirects tumbled from 40.9% to 23.4% -the lowest of 2014 - with Directs remaining roughly flat at 19%, a tad below the 21.5% last month.
So while the auction overall was not fireworky just yet, a few more "dots" fiascoes and suddenly the short end of the curve is going to get a whole lot more interesting. And should European idiot asset managers, once they have taken the Spanish 10 Year to 0%, decide to bid up US paper, and inverted the 2s10s, well that is the time to quiet get out of dodge.