Butternut Squash Soup with Bacon

slices bacon, cut in half crosswise

unsalted butter

sweet onion, such as Vidalia or Walla Walla, coarsely chopped (about 3 cups)

1⁄2 pounds butternut squash, peeled, halved, seeded, and cut into 1-inch pieces (about 6 cups)

sprigs thyme

Coarse salt and freshlyground pepper

3⁄4 cups chicken broth

3⁄4 cups water