Despite the Fed monetizing Treasury debt, treasuries are still having a terrible quarter.

Treasuries are headed for the worst yearly start since 1996 as record debt sales and the prospect of increased issuance as the U.S. seeks to revive economic growth dampen investor demand.
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The nonpartisan Congressional Budget Office estimated the 2010 deficit at $1.38 trillion, higher than the White House’s $1.17 trillion projection.

CBO estimated the deficit for the current fiscal year will be $1.85 trillion, $100 billion larger than the administration forecast.

The Treasury will almost triple sales this year to a record $2.5 trillion, according to primary dealer Goldman Sachs Group Inc. The next round of debt auctions will be from April 7 through April 9. The U.S. sold a record $98 billion of debt last week, and $438 billion for the first three months of the year.

The Fed bought $2.5 billion of government debt yesterday in its third outright purchase, part of its efforts to reduce borrowing costs. It plans to purchase $300 billion of securities in an effort to lower borrowing costs.
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The government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

“There could be an eventual rapid rebound in rates as Treasury supply continues to surge and quantitative easing efforts prove ineffectual in keeping rates low for a significant period,” according to a report by Citigroup analysts including Martin Bernstein in New York distributed yesterday.

Treasuries yields are supposed to go down during a deep recession, not up. Collapsing debt plus record amounts of deficit spending are NOT a good combination for a nation's currency.