Following a week of modest gains, the $30 trillion US Treasury market is preparing for a series of key macroeconomic data releases. This data could provide further justification for investors betting on the Federal Reserve cutting interest rates within the coming months. Influenced by signs of a weakening labor market, US Treasury yields fell across the board this past week, with short-to-medium term bond yields leading the decline. This prompted traders to bring forward their expectations for the first rate cut to June or July. However, yields edged higher on Friday as US equities staged a strong rebound.

Looking ahead to next week, the market will be presented with several major data points, including retail sales, the delayed January US employment report, and the latest inflation figures. These indicators directly correspond to the Fed's dual policy objectives of stable inflation and maximum employment. Concurrently, the US Treasury Department will begin a series of auctions on Tuesday, aiming to issue a total of $125 billion in Treasury securities, adding another variable to market liquidity and yield movements.

George Catrambone, Head of Fixed Income at DWS Americas, noted that the delay in the jobs data has compressed market risk "like a spring." He suggested that information which would have been digested this week is now concentrated into the next, potentially increasing the likelihood of significant market volatility. Catrambone believes the most significant risk currently "hiding in plain sight is the labor market," implying the Fed may need to guide policy rates towards the long-term neutral level—around 3% or slightly lower—more quickly.

Investors will focus intently on the absolute level of job growth and the magnitude of annual revisions. According to a media survey, economists anticipate approximately 70,000 new jobs were added in January, compared to 50,000 in the previous month. The unemployment rate is expected to hold steady at 4.4%, near the cycle high of 4.5% touched last November. The relevant data will be released by the US Bureau of Labor Statistics.

Brian Quigley, Senior Portfolio Manager at Vanguard, stated that the last employment indicator change that genuinely moved the market was a slight dip in the unemployment rate, which the Fed interpreted as a signal of labor market stabilization. "The unemployment rate is probably the most critical number right now; if it remains stable, the Fed will stay on hold; if it rises above 4.5%, then expectations for rate cuts will be reignited."

Interest rate futures markets currently indicate traders assign only about a 16% probability of a 25-basis-point rate cut at the March meeting. The Fed held its policy rate steady in the 3.5% to 3.75% range at its January meeting, following a cumulative 75 basis points of cuts across three meetings from September of last year to recently. Meanwhile, the market has priced in approximately 23 basis points of easing for the June meeting. If confirmed by the Senate, this would be the first rate-setting meeting chaired by the new Fed Chair.

Traders anticipate at least two 25-basis-point rate cuts in the second half of the year, an expectation notably more aggressive than the Fed's own official forecast, which has only hinted at the possibility of one rate cut this year.