(Bloomberg) -- Treasuries fell as traders looked to US inflation data later this week for further clues on how much the Federal Reserve will cut interest rates this year.

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Yields on two-year notes — among the most sensitive to changes in the outlook for policy — rose as much as six basis points to 3.71%, while those on 10-year bonds climbed as much as five basis points to 3.76%. Traders pared the chance of a half-point rate reduction at the Fed’s upcoming September meeting to about 20% from as high as 50% last week.

While US labor market data Friday pointed to a cooling economy, remarks from policymakers that followed fell short of painting a clear case for a big rate cut. Fed Governor Christopher Waller echoed Chair Jerome Powell’s comments that it’s time to start cutting rates, but stressed the size and pace of easing will depend on upcoming economic data.

“The US August CPI report will help shape the magnitude of the Fed’s September rate cut decision,” said Elias Haddad, a senior markets strategist at Brown Brothers Harriman, referring to the data due Wednesday. “Higher than expected US inflation can reduce the probability of a jumbo Fed funds rate cut.”

The US consumer price index likely rose 2.6% in August from a year earlier, according to a Bloomberg survey. That would be the lowest inflation rate in over three years.

The market has been divided for weeks on whether tamed inflation and signs of deterioration in employment figures will prompt the Fed to kick-off its easing campaign with a 25-basis-point cut — the standard move — or something larger. Investors are also unsure of what comes next, and whether the US central bank will aggressively lower rates or adopt a more gradual approach.

The Bond Market Rally Rides on How Fast the Fed Cuts Rates

For HSBC’s Steven Major, the market is far from being stretched in terms of rate-cut expectations. The Fed could reduce interest rates by as much as 300 basis points until they reach a new equilibrium, and the market hasn’t adequately priced in that possibility.

“There may not be enough in the price,” Major, the global head of fixed income research at HSBC, told Bloomberg Television, adding that 3 percentage points of reductions would be “reasonable.” A long-time bond bull, Major affirmed that he prefers to be outright long Treasuries.

Still, traders may need to deal with cross-currents beyond the question of how substantively the Fed with cut.

Alongside the inflation report, attention is turning to the US presidential debate between Kamala Harris and Donald Trump on Tuesday, after president Joe Biden’s calamitous performance saw Trump rise in popularity offering support to the dollar. The Bloomberg Dollar Index rose 0.4% on Monday, with the greenback gaining against most Group-of-10 peers.

“The August US jobs report has failed to resolve the debate over whether the Federal Reserve will cut rates by 25bps or 50bps on Sept. 18,” said Chris Turner, head of foreign exchange strategy at ING Bank NV. “Potentially one of the biggest market movers this week is tomorrow night’s US presidential debate.”

--With assistance from Anchalee Worrachate.

(Adds HSBC’s comments and updates prices throughout.)

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