Treasury yields dropped on Friday as the latest U.S. jobs report showed an unexpected rise in the unemployment rate.

The yield on the 10-year Treasury fell more than 6 basis points to 4.28%. The 2-year Treasury yield declined by nearly 8 basis points to 4.61%.

Yields and prices move in opposite directions. One basis point is equivalent to 0.01%.

The unemployment rate unexpectedly climbed to 4.1%, the highest level since October 2021. Economists expected the unemployment rate to hold steady at 4%.

Nonfarm payrolls increased by 206,000 for the month, better than the 200,000 Dow Jones forecast, though less than the downwardly revised gain of 218,000 in May.

While policymakers want to see more progress on inflation before lowering interest rates, a worsening labor market could increase the urgency to act soon. Traders upped their bets on a September interest rate cut following Friday's jobs report, with odds of a quarter-point cut increasing to about 75%, up from 64% a week ago, according to the CME Group's FedWatch tool.

"Fed officials have their heads in the sand if they think all is well with the labor market," Chris Rupkey, chief economist at Fwdbond, said in a note. "There are darkening clouds moving in from offshore... The Fed is behind the curve and an interest rate cut is warranted by the September meeting at the latest."

Fed Chairman Jerome Powell said recently that progress had been made on inflation coming down, but that the central bank wanted to be more confident that it was returning to the 2% target before loosening monetary policy.

Fresh inflation data is due next week.