TREASURIES-US yields rise as May's job gains beat estimates

By Karen Brettell

June 6 (Reuters) - U.S. Treasury yields rose after data on Friday showed that employers added more jobs than economists had expected in May, indicating that the labor market remains solid despite concerns that it will weaken.

Employers added 139,000 jobs last month, above estimates for a 130,000 increase. Average hourly earnings increased 0.4% in May, above expectations for a 0.3% increase. The unemployment rate held steady at 4.2%, as expected.

“The sell-off (in Treasuries) really reflects this idea that growth sentiment is heading in a bullish direction. We have yet another month of hard data resilience," said Will Compernolle, macro strategist at FHN Financial.

"There is positive progress on tariffs moderating, even if there's nothing final yet. And a lot of the doomsday scenarios people thought were always one month away, it just seems to be a less likelihood that it's coming," Compernolle said.

Investors are concerned that the labor market will soften as companies grapple with the impact of tariffs, which many analysts expect will slow the economy and add to inflation pressures.

"The market was concerned a little bit about that payroll number being weaker this morning... we had some softer data this week," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin.

Data on Thursday showed that the number of Americans filing new applications for unemployment benefits increased to a seven-month high last week.

Wednesday's jobs estimate from the ADP National Employment Report was also weak, showing only 37,000 job gains in May.

Friday's jobs report showed downward revisions for the past two months, which took some gloss off of the data.

However, "overall, that just leaves us in a position here where the labor market is still doing okay. I don't think there are signs that it's falling off a cliff," said Urano.

The yield on benchmark U.S. 10-year notes US10YT=RR was last up 7.3 basis points on the day at 4.468% and earlier reached 4.482%, the highest since May 20. Interest rate sensitive two-year note yields US2YT=RR rose 8.8 basis points to 4.012%, also the highest since May 29.

The yield curve between two-year and 10-year notes US2US10=TWEB was at 45 basis points.

The Federal Reserve is expected to keep rates steady when it meets on June 17-18 as policymakers evaluate how tariffs will impact the economy.

Fed funds futures traders are now pricing in a 62% probability that the Fed will cut rates in, or before September, compared to 74% on Thursday, according to the CME Group's FedWatch Tool.

U.S. President Donald Trump, who has been critical of the Fed keeping interest rates on hold, on Friday said the U.S. central bank should cut rates by a full percentage point.

Traders are also focused on trade talks between the United States and China.

Trump and Chinese leader Xi Jinping held a rare leader-to-leader call on Thursday that left key issues to further talks.

The planned meeting between U.S. and Chinese officials on trade is expected to take place within seven days, White House trade adviser Peter Navarro said on Friday.

Negotiations over a tax and spending bill that some Republicans and billionaire Elon Musk have criticized for not cutting enough spending are also being watched.

Longer-dated yields rose last month on concerns about the deteriorating U.S. fiscal outlook.