It's an auction run by the Fed, for the Fed. The US Fed asks 'everyone line up in order of willingness to give us cheap interest rates for 3 months.' They then

It's an auction run by the Fed, for the Fed. The US Fed asks 'everyone line up in order of willingness to give us cheap interest rates for 3 months.' They then walk down the line, borrowing money from everyone till the borrow the amount they wanted, and agree to pay everyone interest at the rate the last person they borrowed from was asking for. In this case, enough people bid zero that all lenders are getting zero. Banks don't get this zero percent rate. And the government itself can't get a zero percent rate for unlimited amounts, even if the debt ceiling weren't a thing; eventually the Fed's line up of lenders runs out of people willing to lend at zero percent interest.