A post up at Barry Ritholtz’s place says the following

As we suspected in our last update in September, the flight to quality funding of the U.S. budget deficit would replace the end of QE2 and almost 100 percent indirect financing of the deficit by the Federal Reserve.  Looking at the chart one can only imagine where interest rates would be if the deterioration of Europe hadn’t coincided with the end of QE2.

I’ll keep making this point in light form since I will clearly need to make it many, many times.

The interest rate on US debt simply is the projected future path of the Federal Funds rate. What the private market thinks is wholly and completely irrelevant.

There are many ways to think about it but the easiest is this: as a bank it is always a better idea to loan money to the government than to loan money to anyone else. This is because the Federal Reserve sets the price of loanable fund by trading T-Bills.

If the for some reason the Funds Rate fell below the T-Bill rate you would simply borrow in the Funds market to buy T-Bills. This would raise the Funds rate which the Fed would then lower by buying your T-Bills.

The point of QE is in part to push money out of the Treasury market into somewhere else.