A series of upcoming economic reports and Congressional testimony from Federal Reserve Chairman Jerome Powell could jolt U.S. government bonds out of a narrow trading range.

Yields on benchmark U.S. 10-year Treasuries, which move inversely to bond prices, have bounced between about 4.20% and 4.35% since mid-June, as the market digested data showing slowing inflation and signs of cooling economic growth in some indicators. The 10-year yield stood at 4.33% on Friday.

So far, the economic numbers have failed to dispel doubts over how deeply the Fed will be able to cut interest rates this year, keeping Treasury yields range-bound. But next week’s U.S. employment data, followed by inflation numbers and Powell’s appearance could change that outlook.

“The market has settled into a narrative that we may see incremental softness but not a growth scare,” said Garrett Melson, a portfolio strategist at Natixis Investment Managers Solutions. “That will continue to keep us in this range, but the one thing that will push it meaningfully lower is an increase in the unemployment rate.”

U.S. monthly inflation as measured by the personal consumption expenditures (PCE) price index was unchanged in May, a report released on Friday showed, advancing the narrative of slowing inflation and resilient growth that has tamped down bond market gyrations and buoyed stocks in recent weeks. Yet futures linked to the fed funds rate showed traders pricing in just under 50 basis points of rate cuts for the year.

Market reactions to employment data, due next Friday, could be exacerbated by low liquidity during a week when many U.S. bond traders will be on vacation for the July 4th U.S. Independence Day holiday, said Hugh Nickola, head of fixed income at GenTrust.

“The market is waiting for the other shoe to drop.”

A recent survey by BofA Global Research showed fund managers the most underweight bonds since November 2022. Some believe that means yields could fall further if weakening data bolsters the case for more rate cuts and spurs increased allocations to fixed income.

Other highlights for the month include consumer price data scheduled for July 11. Powell is scheduled to give his semiannual testimony on monetary policy on July 9 at the Senate Banking Committee, said the office of its chairman, Senator Sherrod Brown, on Monday. If tradition holds, the Fed Chair will deliver the same testimony at the House Financial Services committee the following day.

Some investors are not convinced Treasury yields have much further to fall. Despite its recent cooling, inflation has proven more stubborn than expected this year, forcing the Fed to rein in expectations for how aggressively it can cut rates. A recent unexpected inflationary rebound in Australia underscored how difficult it has been for some central banks to keep consumer prices under control.

At the same time, some investors believe inflation is unlikely to return to pre-pandemic levels and the U.S. economic is likely to show a higher level of underlying strength, limiting the longer term downside for bond yields, said Thierry Wizman, global FX and rates strategist at Macquarie Group.

“The market has become much more acclimated to the idea that when the Fed cuts rates, they won’t cut by as much as people surmised a few months ago,” Wizman said. “People have adjusted their expectations but there’s a limit to how much yields can fall on one month of bad data.”

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