U.S. Treasury yields jump after significantly stronger-than-expected employment data for August lifted expectations of a Federal Reserve rate hike at the Sept. 16 meeting.

The U.S. created 162,000 jobs in August, approximately three times the 53,000 that analysts forecasts in The Wall Street Journal's poll. Data for July were also revised upward.

Money market expectations of a hike this month jumped to 61% as a result, from 50% prior to the release, according to LSEG data.

"U.S. jobs smash expectations which surge odds of a September rate hike," said Waleed Said, technical analyst at GivTrade.

Treasury yields had been dropping before the data and sharply reversed course to trade higher on the day. The 30-year yield was last at 5.258%, the 10-year at 4.802% and the two-year at 4.412%.

A much stronger than expected headline number opens the door for the Fed to hike rates this month, said Kyle Rodda, senior financial market analyst at Capital.com.

"The next hurdle is the coming week's inflation data. If that comes in a little too spicy, then based on Chairperson [Chairman] Kevin Warsh's Jackson Hole speech, a rate hike is likely to follow," Rodda said.

Markets had previously scaled back rate-hike forecasts after speeches from Fed policymakers.

On Thursday, Fed Gov. Christopher Waller said during a virtual event hosted by Reuters that he would support holding interest rates steady if August inflation data backed it up. Waller's remarks came a day after New York Fed President John Williams indicated that data so far doesn't warrant an increase in borrowing costs. These comments prompted a reversal in yields from multiyear highs hit during the first half of this week.

Investors remain cautious about the outlook for bonds after concerns about elevated energy prices due to the Middle East conflict, combined with worries about high debt levels and fiscal policies. In a move that highlights those concerns, the manager of Norway's $2.4 trillion sovereign-wealth fund proposed slashing the weighting of government debt in its bond portfolio to 50% from 70%.

Focus will now switch to next week's U.S. inflation figures.

"A healthy labor market is good news for households and the broader economy, but it also means the Fed does not have to rush to provide additional support," Steve Rick, chief economist at TruStage, said in a note.

"The question for policymakers will be whether continued strength in employment and demand is contributing to persistent price pressures. If the economy continues to grow at a solid pace, the Fed can afford to keep its foot on the brake."