US Treasuries fell after US job growth topped forecasts in August, prompting traders to nudge up expectations that Federal Reserve officials raise interest rates later this month. The selloff on Friday pushed yields higher across maturities, led by a eight-basis-point climb in the two-year, which hit 4.416%. The five-year yield touched 5.58%, its highest level since January 2025. "What this report has done has shown the labor data is not any type of impediment to a rate hike," said Kevin Flanagan, head of investment strategy at Wisdom Tree.

Swap contracts linked to the Fed's mid-September policy decision priced in 16 basis points of a quarter-point increase, up from around 13 basis points prior. Nonfarm payrolls increased 162,000 last month, topping all estimates in a Bloomberg survey. The unemployment rate remained at 4.1%. Bloomberg Economics expects next Friday's consumer prices reading to show headline inflation at 3.4% annually.

A September rate hike is "all conditional on that inflation report," Jeffrey Rosenberg, portfolio manager at Black Rock, told Bloomberg Television. Focus is also on a buyback next week after Treasury Secretary Scott Bessent announced plans to boost the operation's size for longer-dated securities. European sovereign debt bore the brunt of rising gas prices as fighting flared between the US and Iran. Norway's sovereign wealth fund proposed reducing its allocation to government bonds in its $2.3 trillion portfolio.