Treasuries have taken some more heat on the news that Moody's warned the outlook on the U.S. could be cut if no progress is made on the debt ceiling. The risk of short-lived default by the U.S. is very small, but rising. Moody's said, "If there is no progress on increasing the statutory debt limit in coming weeks, it expects to place the US government's rating under review for possible downgrade, due to the very small but rising risk of a short-lived default. If the debt limit is raised and default avoided, the AAA rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the AAA rating." The pullback today is now nearing the midpoint of yesterday's activity at 122-30 (roughly 3.03/3.04%). A close above this level (lower yield) will keep the bullish momentum solid into tomorrow's report. Mtg backs are currently off 10 ticks in the lower coupons, 10yr trading down 15 at 3.02%.