The initial water weight loss comes from your body using up glycogen which is stored in both your muscles and your liver. Each gram of glycogen has 3(?) grams of water attached to it, so using it up causes a big drop in the water composition of your body.

A lot of people get very thirsty when they are low carbing. It is because the diet has a strong diuretic effect on the body, it flushes all of the rubbish out of your body.

Also, something to keep in mind with bodyfat% - they can fluctuate by up to 5% depending on your level of hydration, so you may actually have lost some bodyfat, but because you are drinking so much ater it might not register