Treasuries are even stronger and equities continue to struggle Friday morning after the House postponed voting on Speaker Boehner's deficit-reduction plan.

The benchmark 10-year yield is four basis points firmer at 2.92%, the two-year is two basis points lower at at 0.40%, and the 30-year yield is two basis points lower at 4.24%. The Fannie Mae 4.0 MBS coupon is +6/32 at 100-31.

Spain was also put on review for possible downgrade by Moody's, giving more reason for traders to play the risk aversion trade.

"The usual culprits are benefiting, as the Swiss franc and yen are nearing record levels," said economists at BMO Capital Markets. 

The S&P 500 looks to open 6.00 points lower at 1,290.75 and Dow futures are 57 points lower at 12,136. Since last Friday the Dow has already shed 484 points, or 3.81%.

Light crude oil lost 0.72% to $96.74 per barrel, while COMEX gold prices rose 0.21% to $1,616.80 per ounce.

Key Events Today:

8:30 - The key release this week is second-quarter GDP. Unfortunately, it's not key for its ringing endorsement of economic optimism. Citigroup analysts said Q2 GDP "will likely show that the first half of 2011 was the worst two-quarter period since the beginning of the recovery." The consensus forecast expects quarterly growth at 1.7%, annualized

"The rather thorny results we are anticipating from next Friday's second quarter growth figures are apt to have a somewhat chilling effect on economic sentiment," said economists at Janney Capital Markets, who mention stalled consumer spending activity, significant weakness in housing investment, and a downward trajectory in government spending, and uncertain exports.

"The details of the report are likely to show a gloomier picture of the economy," added economists at Nomura Global Economics. "If our expectations are met, more than half of real GDP growth in Q2 came from inventory accumulation rather than an increase in final demand. We expect real personal consumption to increase by only 0.6% q-o-q."

9:45 - The Chicago Business Barometer, an index of the services and manufacturing industries, is expected to remain at robust levels in July. The mean prediction is 60.0, down slightly from 61.1 a month before but a full 10 points above the growth threshold.

"Business activity in the Chicago area has been more robust than the national average, and apart from the May reading has not shown any weakness associated with the overall economic slowdown in the first half of the year," said economists at Citigroup. Even the May reading wasn't bad at 56.6.

9:55 - There's little reason for Consumer Sentiment to improve with daily headlines warning the U.S. could lose its AAA ratings or even default on its debt. The outlook is shaped by fewer government services and higher taxes, coupled with estimates that unemployment will remain elevated for the coming years. So don't be surprised some economists are projecting this sentiment survey to fall to 56.5 from 61.1 a month before. The consensus estimate is a higher though, at 60.

"The May and June payroll numbers were very disappointing, personal income growth has slowed down, and core price inflation - inflation excluding energy and food prices - has increased," said economists at IHS Global Insight. "Stock market volatility and the dismal state of affairs on the housing front are pushing household net worth down as well. The only good news has been the recent drop in gasoline prices - which reached $4.00/gallon in mid-May and now stand at $3.74/gallon. In July, however, gasoline prices have edged upward."

10:00 -  Residential Vacancies and Homeownership data for the second quarter 2011 will be released

Onto politics. From CSPAN...

Boehner Regroups After Postponed House Debt Ceiling Vote

After a setback, the U.S. House will try again Friday to pass a bill to lift the debt ceiling. A vote that was scheduled to take place early Thursday evening became late Thursday night before Republican leadership pulled the bill from the floor.

House Speaker John Boehner (R-OH) spent the evening attempting to finalize support for his bill but fell short, causing him to postpone the vote for at least another day.  The Republican conference is expected to gather Friday morning to regroup and chart a course forward.

The Senate, meanwhile, is continuing to wait for the House to act before it takes up any legislation to lift the debt ceiling. Senate Majority Leader Harry Reid (D-NV) said he will hold a vote to table, or discard, the House bill immediately after – and if – the House passes the bill.

Senator Reid said “every Democratic Senator would vote against” Boehner’s plan, making it impossible to pass in the Democratic-led Senate, he said. 
 
No agreement between Republicans and Democrats and within the Republican Party means the path forward is still uncertain with four days until the August 2nd deadline imposed by Treasury Secretary Timothy Geithner.

The road to lifting the debt ceiling has been rocky. Negotiations between a bipartisan group of lawmakers and Vice President Biden failed. So did talks between the President and Speaker Boehner as did subsequent talks between the President and Congressional leaders.