A bearish growth outlook remains the dominant theme even as the Senate prepares to vote on a bill, already passed by the House, to raise the debt ceiling.

The benchmark 10-year Treasury yield is down another seven basis points this morning to 2.68% - a fresh 2011 low. Its yield has fallen a remarkable 91 basis points since mid-April when it was 3.59%, including a 30 basis points drop since S&P issued a downgrade warning on July 14.

"Growing fears about the economy are trumping credit-risk concerns," said economists at BMO Capital Markets.

The two-year yield is three basis points lower at 0.34% and the 30-year yield is five basis points lower at 4.03%. The 234 basis point spread between two- and 10-year yields is the narrowest since December. 

The Fannie Mae 4.0 MBS coupon is +7/32 at 102-04, its highest price since early November.

Equities continue to dig lower. The S&P 500 looks to open 11 points lower at 1,268.75 and Dow futures are 82 points lower at 11,955. The Dow has already been sinking the previous seven sessions, shedding 591 points, or 4.65%.

Meantime, light crude oil fell 0.86% overnight to $94.07, while gold prices rose 0.54% to $1,630.50.

Key Events Today:

8:30 - Weakness is the expectation on both sides of the Personal Income & Outlays report. With just 18,000 news jobs created in June, incomes are expected to advance a marginal 0.2% in June, following gains of 0.3% in the prior two months. Consumption is expected to be held back by anemic auto sales, still-high gas prices, and pessimistic consumer sentiment, translating into a 0.2% uptick following a flat May and 0.3% gain in April.

"The negligible 18k increase in nonfarm payrolls coupled with no growth in hourly earnings points towards falling nominal consumer incomes, a problem that's even greater in light of year-over-year increases in commodities prices," said economists at Janney Capital Markets. "Overall, the consumer picture isn't looking very pretty, and with fiscal stimulus off the table and a risk of deep federal spending cuts, the only thing that can help may well be time."

Meantime, the core PCE price index - the Fed's preferred measure of inflation - is anticipated to report a year-over-year rate of 1.4%, versus 1.2% in May.

"Spiraling inflation is currently not one of our fears, given the considerable slack that exists in the labor market and the sluggish level of wage and income growth," said economists at IHS Global Insight. "In addition, inflation expectations as measured by the Conference Board survey have fallen in July."    

Treasury Auctions:

• 11:30 - 4-Week Bills