Bonds began the day in fine shape, but not without a good amount of assumed anxiety ahead of data and Yellen.  Still, Treasuries did reasonably well overnight, and had picked up about 1bp in overnight trading.  MBS hit the 8am hour up 2 ticks from yesterday's close.

ADP Employment data was the first of the two major data considerations.  It was right in line with forecasts.  If you've been following my narrative--or rather, if you believe in it--you already know that tepid data is all it takes for the Fed to stay on track for a December rate hike.  Even if you don't know that, it looks like market participants do.  That would be one of the only ways to explain the decidedly negative reaction at 8:15am.

The next data hit at 10am with ISM Non-Manufacturing coming in stronger than expected.  There was less of a reaction this time around, though it certainly didn't help bonds.  The absence of a big move at 10am was a clue on 2 fronts.  First, in conjunction with the bigger reaction to ADP, we can conclude that traders are really only interested in this week's meatiest data: NFP on Friday.  As such, the report that speaks most directly to NFP (ADP) is the one that got the nod.

The 2nd part of the clue was the fact that Yellen had jut begun her Congressional testimony.  While the prepared remarks didn't have any interesting comments on monetary policy, it stood to reason that at least one of the questions would concern the Fed's rate hike prospects.  After that prophecy was fulfilled, Yellen didn't waste much time before unequivocally confirming the thesis from last week's announcement.  In not so many words, the is doing everything short of promising  to hike rates in December and markets are reacting accordingly.