Today's market mover came out of left field, and in a big way.  The Employment Cost Index is typically a non-event, having only moved markets noticeably one other time in the past few years.  But it completely rocked them today.  Chalk that up to the fact that it was the lowest quarterly wage growth in the history of the report, rising only 0.2% vs a median forecast of 0.6%.  That means Q2 wages grew at only 1/3rd the pace expected!  (Incidentally, Q1's pace was +0.7).

After a flat overnight session, Treasury yields rocketed lower, and MBS jumped up more than a quarter point.  Additionally, the discussion on the yield curve in this morning's commentary is timely as there were immediate implications for the curve.  Reason being: the severe lack of wage growth suggests severe issues for even the most conservative Fed inflation forecast.  No wage growth=no inflation.  It's very hard to justify a rate hike in that environment. 

As such, the shorter end of the yield curve went from zero to hero this morning.  2-5yr yields had been underperforming 10's and 30's (e.g. 10yr yields were very slightly lower at 8am while 2yr yields were higher, day-over-day).  After the data, the short end took over because the wage data has the most direct effect on short term rate expectations (due to Fed rate hike outlook). 

Nothing much has changed since then, with bond markets continuing to drift sideways at the week's best levels.  In fact, these are the best sustained levels (throwing out Greece-related volatility) in nearly 2 months.