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imageNEW YORK: US Treasury yields jumped on Friday, with three-year yields hitting one-week highs, after data showing US employment increased more than expected in July and a wages rise boosted expectations for a 2016 Federal Reserve interest rate hike.

Nonfarm payrolls increased by 255,000 jobs last month as hiring rose broadly after an upwardly revised 292,000 surge in June, the Labor Department said. Economists polled by Reuters had forecast payrolls increasing 180,000 in July.

While the unemployment rate was unchanged at 4.9 percent versus economists' expectations that it would dip one-tenth of a percentage point to 4.8 percent, average hourly wages highlighted labor market strength with an increase of eight cents for an annual rise of 2.6 percent.

After the data, Federal funds futures implied traders saw a 46.5 percent chance of a Fed rate increase by the end of the year, compared to just a 32.1 percent chance on Thursday, according to data from CME Group's FedWatch program.

"This is definitely a very solid report, and I think Fed policymakers have to be very pleased with this," said Kathy Jones, fixed income strategist at Charles Schwab in New York.

US three-year Treasury yields hit a session high of 0.817 percent. While other yields rose, they remained within ranges set in recent sessions, with 30-year yields only rising as high as 2.2870 percent.

Analysts said continued demand for US government bonds, which provide higher yields compared to low or negative ones in other countries, likely led some traders to step in and buy US Treasuries on the jump in yields, analysts said.

Yields on UK gilts maturing in 10 years hit fresh record lows on Friday of 0.632 percent, while 10-year German Bund yields were at negative 0.073 percent.

"We are kind of in a yield-starved environment globally," said Mark Cabana, head of US short rates strategy at Bank of America Merrill Lynch in New York. "We may be seeing some folks coming in and buying."

He said that, despite the modest climb in Treasury yields, the data reinforced Bank of America Merrill Lynch's expectations for a December rate hike.

US 30-year Treasuries prices were last down 14/32 to yield 2.276 percent, from a yield of 2.255 percent late Thursday. Benchmark 10-year prices were last down 13/32 to yield 1.547 percent, from a yield of 1.502 percent late Thursday.

Copyright Reuters, 2016

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