NEW YORK (CNNfn) - Treasury bonds rallied Friday, after a weaker-than-expected U.S. employment report fueled hopes that the Federal Reserve will not hike interest rates in the coming months.
In the currency markets, the dollar advanced against both the euro and the yen.
Shortly before 3 p.m. ET, the 10-year Treasury note, considered the market benchmark, rose 11/32 of a point in price to 103-19/32. The yield fell to 6 percent from 6.05 percent Thursday, as yields move inversely to prices.
The 30-year bond gained 23/32 to 105-15/32, its yield retreating to 5.85  percent from 5.91 percent.
The latest economic news provided further evidence that the economy has lost steam. The economy created 11,000 jobs in June, compared with a revised 171,000 positions in the prior month, according to the Bureau of Labor Statistics. The number was much lower than consensus estimates of 260,000.
June's unemployment rate dipped to 4 percent from 4.1 percent in May, and average hourly earnings, a measure of inflation, rose 0.4 percent, both in line with expectations.
"The data today confirmed in people's minds that the economy is slowing, and there may be no need for further tightening," said Kevin Logan, senior  market economist at Dresdner Kleinwort Benson.
Michael McDermott, bond futures trader at Salomon Smith Barney, told CNNfn's Before Hours the jobs report was consistent with other recent data pointing to a slowdown. (228K WAV) (228K AIFF)
The fed funds futures contract, which gages market expectations for where rates will go, now points to a 35 percent probability of a quarter percentage point hike at the next meeting on August 22. At the close of trading Thursday, the probability was about 55 percent.
The Fed increased short-term interest rates six times in the past year in order to cool the economy. Last week, it kept rates steady at 6.5 percent.
Although the bond market has had a good run-up recently, analysts noted it will still need to digest upcoming inflation data and another employment report before the August meeting. Next week's calendar includes the June producer price index and retail sales, both scheduled Friday.
With the jobs report out of the way, the corporate and agency bond markets are expected to gain momentum in the wake of last Wednesday's record $14.5 billion multi-currency debt sale from Deutsche Telekom (DT: Research, Estimates).
Dollar gains
The dollar rose against the euro and the yen Friday, bolstered by the employment report. "The equity market responded positively to the jobs report, which in turn helped the dollar," said Michael Hartnett, senior international economist at Merrill Lynch. "It was a 'buy U.S.A.' payroll number."
The dollar continued to trade at one-month highs against the yen amid  growing doubts that the Bank of Japan will end its zero interest rate policy this month.
Late in the day, activity subsided as traders looked ahead to the weekend's Group of Seven (G-7) meeting of finance ministers in Japan. The G-7 is comprised of the world's seven leading industrialized nations. No joint statement is expected.
Shortly before 3 p.m. ET, the euro traded at 94.71 cents, down from 95.08 cents Thursday. The dollar traded at 107.87 yen from 107.37 yen Thursday, a 0.5 percent gain in the dollar's value. 
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