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. 

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
100-20 : +0-14
FNMA 3.5
103-25 : +0-13
FNMA 4.0
106-12 : +0-10
2 YR
0.6760 : -0.0510
10 YR
2.1980 : -0.0590
30 YR
2.9050 : -0.0380
Pricing as of 7/31/15 12:27PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
8:53AM  :  Big Pop (Good Kind) on Wage Implications in Employment Cost Data

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Hugh W. Page  :  "Wow, smallest quarterly wage increase ever . . . or since records have been kept. "
Matthew Graham  :  "Sentiment, certainly not. PMI, maybe some, but this will be hard to reverse unless something else besides today's data pushes back."
Scott Lushing  :  "is PMI and mich sentiment big enough to do a full reversal on these numbers or are we good for green regardless?"
Hugh W. Page  :  "Last time I had an in depth review of Yield Curve dynamics it was in graduate school (3/4's of which I have relegated to the back corners of my brain matter) and this one MG actually had more relevance to me. Good stuff"
Matthew Graham  :  "pretty interesting that the day ahead was about the curve and now this morning creates one of the most overt examples (i.e. 3yr yields now down more than 10's)"
Matthew Graham  :  "not normally a big market mover, but this was a massive miss"
Scott Lushing  :  "that in and of itself means it is a huge indicator"
Matthew Graham  :  "major commentary on lack of wage growth. Seen as putting the Fed on hold, which is why stocks are rallying despite the bond rally."
Matthew Graham  :  "dead on SL"
Scott Lushing  :  "what does this index mean? that wages are not increasing much because the cost of wages are not increasing?"
Matthew Graham  :  "RTRS- U.S. Q2 WAGES/SALARIES +0.2 PCT VS Q1 +0.7 PCT (PREV +0.7 PCT)"
Matthew Graham  :  "RTRS- U.S. Q2 EMPLOYMENT COST INDEX +0.2 PCT (CONSENSUS +0.6 PCT) VS Q1 +0.7 PCT (PREV +0.7 PCT)"