Interest rates are trading toward the high side of their recent range as equity futures extend yesterday's gains after positive economic news out of Europe bolstered investor sentiment.

British GDP almost doubled expectations by growing at a 1.1% annualized pace in the the second quarter, versus the +0.6% consensus prediction. Compared to one year ago GDP is up 1.6%. Meantime, the German IFO business climate survey jumped to a three-year high of 106.2 in July, up from 101.8 in June. 

One hour before the opening bell, S&P 500 futures are up 3.75 points to 1,091.50. 1090 is a key inflection point in S&P futures.

The 2-year Treasury note is -0-01 at 100-03, 1.6 basis points higher in yield at 0.58%, just above newly set record lows. The benchmark 10-year Treasury note is among the worst performers on the curve, down 13/32nds to 104-13 yielding 2.976% (+4.5bps).

The September delivery Fannie Mae 4.0 is -0-06 at 101-11 while the FNCL 4.5 is -0-02 at 103-17. The secondary market current coupon is  3.6bps higher at 3.772%. Yield spreads are tighter vs. both Treasuries and interest rate swaps.

According to the Wall Street Journal, Tim Geithner said the Obama administration plans to let tax relief measured enacted under George W. Bush for the wealthiest Americans to expire in January 2011, “despite calls from a small but increasingly vocal group of Democrats to delay any tax increases.”

Key Events Today: 

No significant data is released in the US, but the European Central Bank will release the results of bank stress tests. A survey of 376 investors and funds in Europe, initiated by Goldman Sachs, indicates that 10 banks are expected to fail the tests. Firms in Greece, Germany and Spain are expected to need to raise the most capital.