Two-year Note auction strong

Demand at the front end of the Treasury curve remains strong, as evidenced by the just-completed 2-year Treasury Note auction. Market players polled by Bloomberg expected the $40 billion of notes to sell at a yield of 1.202%. Instead, they sold at 1.151%. A whopping 68.7% of the notes sold went to indirect bidders, a group that includes foreign central banks. That's the highest since at least 2003. The bid-to-cover ratio was also strong at 3.19, the highest since September 2007.

The problem isn't really demand for shorter-term debt, however. The question is whether longer-term bonds will continue to find buyers.