The fact that the US is at the debt ceiling, and every incremental dollar of debt issued has to be met with a comparable underfunding in retirement funds is not bothering the SecTres (at least until August 2 at which point all mechanisms to delay the ceiling breach expire). Which is why today's auction of 2 Year paper passed with barely a glitch: $35 billion (CUSIP QZ6) priced at 0.56% (89.7% allotted at high), the lowest yield since December 2010. The Bid To Cover was a sizable jump to recent auctions, coming at 3.46, nearly half a turn higher than last auction's 3.06, and higher than the LTM average of 3.38. Not surprisingly, at 31.29% Indirect interest was the lowest since January, as foreign central banks and investors are dealing with tightening concerns of their own, meaning the bulk of the auction went to Primary Dealers (half) and the balance to Direct Dealers, who took down a 2011 high of 19.15%. The direct bidder hit rate was a surprisingly solid 32.22%. Nonetheless, with the WI trading almost on top of the auction High Yield, there were no surprise in the short-end of the bond market, where investors once again are forced to look ever further right for any yield, as short-term rates have plunged to lows last seen just when the equity market was about to flip over (not to mention the quirks currently in the money market funds which has snagged the shadow economy rather bad since the FDIC fee assessment was imposed).