The US Treasury market saw declines across the short and intermediate segments of the yield curve on Friday, as bond futures dropped sharply following the release of stronger-than-expected August nonfarm payrolls data during the early US session.

Selling pressure gradually eased as the trading day progressed, with market focus quickly shifting to next week's Producer Price Index (PPI) and Consumer Price Index (CPI) reports. A late-session uptick in oil prices helped push yields on maturities within the 10-year sector to finish the day higher.

Short-end yields rose as much as 4 basis points shortly after 3 PM in New York, while longer-dated yields edged slightly lower, resulting in a bearish flattening of the yield curve. The 10-year Treasury yield hovered around 4.78%, roughly 1 basis point higher than Thursday's close.

In the wake of the jobs report, short-term swap markets increased their pricing for interest rate hikes. By the close, the market had priced in approximately 15 basis points of tightening for the September meeting, up from 13 basis points at Thursday's close. For the longer horizon, the market priced in roughly 35 basis points of cumulative hikes by year-end, compared to 34 basis points the previous day.

Most of the day's losses occurred immediately following the nonfarm payrolls release. The data showed 162,000 new jobs added, significantly exceeding the estimated 55,000, while the previous month's figures were also revised upward. The sell-off was led by bonds at the short and intermediate end of the curve, pushing both the 2-year/10-year and 5-year/30-year spreads to their intraday lows. By the late session, these spreads were still narrower by 2.5 basis points and 3.5 basis points, respectively.

In the Secured Overnight Financing Rate (SOFR) options market, a notable trade involved a large purchase of December call spreads, seemingly betting that the hawkish repricing had gone too far and targeting the Federal Reserve holding rates steady at its remaining three policy meetings this year.

Around 3:43 PM in New York, the US 2-year Treasury yield was up 3.4 basis points at 4.3703%.

The US 5-year Treasury yield rose 2.7 basis points to 4.5413%.

The US 10-year Treasury yield gained 1 basis point to 4.7781%.

The US 30-year Treasury yield slipped 0.4 basis points to 5.2423%.

The spread between the US 5-year and 30-year Treasury yields narrowed about 3.1 basis points to 69.92 basis points.

The spread between the US 2-year and 10-year Treasury yields tightened roughly 2.2 basis points to 40.58 basis points.