NEW YORK - Yields of short-term U.S. Treasuries fell from multi-year highs Friday after a closely watched employment report showed unemployment rising and job growth slowing in August.

Non-farm payrolls increased by 315,000 jobs last month, down from a surging 526,000 in July, the Labor Department said. The unemployment rate increased to 3.7% from a pre-pandemic low of 3.5% in July. Economists polled by Reuters had forecast payrolls increasing 300,000.

Estimates ranged from as low as 75,000 to as high as 450,000. The jobs data comes a week after Federal Reserve Chair Jerome Powell said that the U.S. economy may face a painful period of slow economic growth and rising unemployment as the central bank continues an aggressive pace of interest rate hikes to curtail inflation, which is running near 40-year highs.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 4 basis points at 3.482% after hitting 15-year highs the day before. The yield on 10-year Treasury notes was up 1.7 basis points to 3.282%, one day after hitting two-month intraday highs, while the yield on the 30-year Treasury bond was up 3 basis points to 3.404%. Bond yields rise as bond prices fall.

"The basic message is the labor market might be starting to cool and the Fed might not have to move so aggressively," said David Page, head of macroeconomic research at Axa Investment Managers.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -20.8 basis points.

(Reporting by David Randall; Editing by Andrea Ricci)