Markets having seemingly stabilized again following a disastrous day in equities on Wednesday. Political noise in Washington remains the dominant theme as the House prepares to vote on Speaker Boehner's deficit-reduction plan, which may be much ado about nothing, as analysts don't expect such a plan to pass the Senate.

"If it fails, the alternative Reid plan, which raises the debt ceiling sufficiently to ensure the government won't max out its credit cards until after the next election, will go to a vote, though it is unlikely to pass the Republican-controlled House without alterations," noted economists at BMO Capital Markets.

Treasuries are slightly better across the curve: the 10-year yield is 2bps lower at 2.962%, the two-year is 1.2bps lower at 0.434%, and the 30-year yield is 1.2bps lower at 4.28%. Meanwhile in mortgage space, after a rough session yesterday where an illiquid roll market led cash TBAs "lower and wider",  the Fannie Mae 4.0 coupon is +6/32 at 100-15. Treasuries are however outperforming current coupon MBS (yield spreads wider again. AQ has the CC +98/10yTSY).

Stocks got slaughtered yesterday and are slightly lower again this morning. The S&P 500 looks to open 1.50 points lower at 1,297.50 and Dow futures are down 13 points to 12,231. Equities have turned downwards in each of the last four sessions including the biggest drop in six weeks yesterday; the S&P is down 2.9% since last Friday.

Meantime, credit spreads in Spain and Italy continue to widen. The 10-year Spanish rate is back above 6% and, according to BMO Capital Markets, Italian rates are "testing that level amid lingering doubts about the efficacy of the latest EU rescue plan."  The euro, too, is under pressure this morning.

Light crude oil is stable at $97.40 per barrel, while COMEX gold prices rose 0.04% to $1,615.80 per ounce.

Key Events Today:

8:30 - Initial Jobless Claims jumped 10,000 to 418k in the week ending July 16 - the survey week for nonfarm payrolls. Early July can be a tough time to glean the data because auto plants tend to shut down for retooling, thus skewing the numbers, but the eight weeks with a four-week average above 420k gives some idea of many people are continuing to lose their jobs on a weekly basis. 

"Initial jobless claims probably fell by 8,000 after an above-forecast rise," said economists at Citigroup. "Now past auto factory shutdowns and the Minnesota budget impasse, the figure hopefully should be a clearer gauge of underlying employment activity. If our estimate is correct, the four-week moving average retreated to the lowest level since mid-April."

10:00 - Economists anticipate the Pending Home Sales Index to shed 2% in June. How helpful this index is a matter of debate right now. In April it posted an 11.3% decline, only to post an 8.2% recovery the following month. By those standards, a 2% decline looks stable. 

"Part of the April weakness appears to have been due to inclement weather/flooding in the Midwest and South, so we were not surprised to see a significant recovery in the following month," said economists at Deustche Bank. 

Deustche Bank noted that contract signings are recovering swiftly and were up 13.4% from year ago levels.

"Pending home sales rose strongly in May and across all regions," added economists at Nomura Global Economics. "The pending home sales index typically has up to a two-month lead-time over existing home sales and MLS listings suggest another increase in this metric in June."

12:45 - Jeffrey Lacker, president of the Richmond Fed, speaks on economic recovery.

2:30 - John C. Williams, president of the San Francisco Fed, speaks on the economy.

Treasury Auctions:
1:00 - 7-Year Notes

Regarding the Debt Ceiling Debate. From CSPAN....

The House is expected to begin debate and vote on House Speaker John Boehner’s (R-OH) plan to lift the debt ceiling as early as today. Speaker Boehner released a revised version of his proposal Wednesday evening, which cuts $917 billion dollars of spending over ten years. In a statement Speaker Boehner said the new plan sticks to Republican standards: cutting more than lifting the debt ceiling. His new plan proposes a $900 billion debt limit increase.  "The Republican proposal includes real spending cuts and reforms that will restrain future spending – and the spending cuts are larger than the debt limit increase," he said

The Congressional Budget Office (CBO) confirmed that his new plan does cut more than his previous proposal, which would have cut $850 billion, but it is still less than the $1.2 trillion he originally said his plan would cut.

As Speaker Boehner rallies support among his colleagues, a stalemate between the two parties continues.  Senate Majority Leader Harry Reid (D-NV) said “every Democratic Senator would vote against it,” making it impossible to pass in the Democratic-led Senate, he said.

House Democrats encouraged the President to invoke the 14th amendment to the U.S. Constitution to unilaterally lift the debt ceiling without Congressional authorization. But the White House has rejected the option. White House Spokesperson Jay Carney said, “The President does not have the authority to raise the debt ceiling.”

The Senate is continuing to wait on the sidelines to see if and how the House votes on the debt deal. Senator Reid's proposal would lift the debt ceiling by $2.4 trillion and cut spending by $2.2 trillion, which includes savings from winding down the wars in Iraq and Afghanistan, according to a CBO analysis.