Longer-dated U.S. Treasury yields rose on Friday, and the yield curve steepened after data showed that wages increased more than expected in August even as jobs growth slowed. Average hourly earnings rose 0.6% in the month, more than the 0.3% economists expected.

Nonfarm payrolls missed expectations with an increase of 235,000 jobs amid a softening in demand for services and persistent worker shortages as COVID-19 infections soared. Economists polled by Reuters had forecast nonfarm payrolls increasing by 728,000 jobs.

Inflation Backdrop

"You have the front-end responding to a Fed that's going to be on hold for perhaps longer, while they are going to have to contend with this inflation backdrop that is, perhaps, even higher than what they had anticipated and could last longer than anticipated," said Zachary Griffiths, an interest rate strategist at Wells Fargo in Charlotte.

Benchmark 10-year yields rose to 1.331%, from around 1.299% before the data was released. The yield curve between two-year and 10-year notes steepened to 112 basis points, from 108 basis points.

Federal Reserve Chair Jerome Powell said last week there was no rush to tighten monetary policy and gave a detailed account on why he regards a spike in inflation as temporary. The Fed is expected to begin paring bond purchases this year, but is viewed as unlikely to announce a change in policy until later this year. "I don't think this changes tapering at all. If anything, it supports Powell's more gradual approach," said David Petrosinelli, senior trader at InspereX in New York.

September 3 Friday 9:53AM New York / 1353 GMT Price Current Net Yield % Change (bps) Three-month bills 0.045 0.0456 0.000 Six-month bills 0.0525 0.0532 0.002 Two-year note 99-214/256 0.2081 -0.005 Three-year note 99-232/256 0.4071 -0.003 Five-year note 99-210/256 0.7869 0.011 Seven-year note 100-40/256 1.1017 0.028 10-year note 99-64/256 1.3308 0.037 20-year bond 97-244/256 1.8735 0.041 30-year bond 101-24/256 1.9516 0.045 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.75 0.00 spread U.S. 3-year dollar swap 11.25 -0.25 spread U.S. 5-year dollar swap 8.50 -0.25 spread U.S. 10-year dollar swap 1.25 -0.25 spread U.S. 30-year dollar swap -28.00 0.00 spread

(Additional reporting by Herb Lash in New York; Editing by Emelia Sithole-Matarise and David Evans)