There are no 2 ways about it: NFP was a non-event.  Not only did it produce far less of a reaction when compared to other instances of NFP Fridays, it didn't even come close to several recent NON-NFP days.  It was a total and complete waste of a 3-day weekend-adjoining day!

When big potential market movers whiff this badly, there are two ways to look at it.  Either NFP simply never mattered as much as we thought it did, or it threaded some sort of needle by being just bullish enough for the bulls and just bearish enough for the bears.  Here's how you could make a case for the latter:

• The headline was the obvious 'miss.'  173k vs 220k forecast.  That would normally be good for a bigger rally in bond markets, but we actually lost ground at first.  
• The lost ground wasn't a factor of the headline.  In fact, the headline was our salvation, and indeed a positive influence that would have helped bonds rally even more if it wasn't offset by the opposing team.
• The opposing team consists of revisions to the previous 2 reports, stronger wages, an organic drop in unemployment, and a comment from the Labor Department about this month of data typically being revised higher.  With all this in mind, markets seemed to be asking themselves the question: "so is this good enough to prompt a September rate hike?"
• The negative headline combined with the positive anecdotes could easily have left an equilibrium that prevented a big move in either direction.

The argument against the needle-threading deserves attention too.  In other words, maybe no one would have cared too much one way or the other, except perhaps in cases of an extremely large deviation from the forecast.  In this version of reality, it can be argued that bond markets have done most of what they needed to do in order to price-in a Fed hike, thus putting the burden of proof on weaker economic data to change the outlook.  This data was weaker at the headline level, but due to the counterpoints discussed above, not really weak enough to drastically change anyone's thinking.

Either way, we made it through NFP Friday with modest gains in MBS and longer-dated Treasuries.  Lenders also let their guard down a bit and passed some of the traditional pre-NFP cushion back to originators (i.e. rate sheets were slightly stronger than MBS gains would have suggested).  A meaningful amount of that phenomenon is also due to the fact that yesterday ended with a quick run to the day's best levels.  This set today's day-over-day baseline higher than the last rate sheets would suggest, so there was already some built-in love to be shared.  (In other words, the day's last rate sheets yesterday were a product of a Fannie 3.5 coupon that flat-lined at 103-28.  In the last hour of the day, prices rose to 103-31, but few lenders repriced.  Thus, today's 'change' is from that 103-31 level despite rate sheets based on prices several ticks lower.)