The rebound in bond prices, which took yields near their six-month lows, followed a sharp sell-off on Thursday that was the result of profit-taking and Moody's warning of a small but rising risk of a debt default by the United States if it does not raise the government's debt limit.

The U.S. Labour Department on Friday said U.S. employers hired 54,000 workers in May, well below the median consensus of a 150,000 increase among economists polled by Reuters. This was the weakest monthly job growth since Sept 2010.

"A very disappointing number, the 54,000 (job gain) takes the wind out of the sails for a robust recovery in the labour market," said Sean Simko, senior portfolio manager at SEI Investments Co. in Oaks, Pennsylvania, which manages $179 billion in assets.

Moreover, the jobless rate a measure of slack in the U.S. economy unexpectedly rose to 9.1 percent last month from 9.0 percent in April. Analysts had expected it to dip to 8.9 percent. For more, see

The price on benchmark 10-year notes last traded up 21/32 with their yield 2.95 percent, down from 3.03 percent late on Thursday.

In the interest rates futures market, futures on federal funds for September 2012 delivery were 5.5 basis points at 99.55.

This implies that traders see less likelihood the Fed will hike its target rate on overnight interbank loans in the fourth quarter of next year.

Copyright Reuters, 2011