By Sam Goldfarb

U.S. government bond prices slipped Friday after new data showed the economy added more jobs last month than expected.

The yield on the benchmark 10-year U.S. Treasury note settled at 0.562%, according to Tradeweb, compared with 0.535% on Thursday.

Yields, which rise when bond prices fall, immediately ticked higher after the Labor Department said the economy added 1.8 million jobs in July on top of the 4.8 million added the previous month. That was above the forecast of economists surveyed by The Wall Street Journal, who had expected a 1.5 million increase in jobs.

Yields soon fell back to previous levels, a sign investors expect a challenging economic recovery and years of ultraloose monetary policy while businesses and households try to recover from the fallout of the coronavirus pandemic. Still, yields edged higher again later in the morning, as investors looked ahead to a slate of large Treasury note auctions coming next week.

Before the report, yields on longer-term Treasurys had been trending downward owing in part to signals from the Federal Reserve that it could leave short-term interest rates at around zero until inflation has reached or exceeded its 2% target.

Investors' expectations for years of easy money policies have helped drag the 10-year yield near its record closing low of 0.501% after it spent months mostly hovering around two-thirds of a percent. At the same time, signals from the Fed have led to an even sharper decline in the yields on Treasury-inflation protected securities, or TIPS, as investors bet the central bank will at least drive inflation closer to its target.

The yield on the 10-year TIPS dropped to a record low in late July and has extended its decline since then. It finished Friday's session little changed at around negative 1.04%.

A measure of investors' annual inflation expectations based on the difference between 10-year nominal and inflation-protected Treasury yields -- known as the break-even inflation rate -- climbed to above 1.6% from 1.05% on May 1.

Write to Sam Goldfarb at sam.goldfarb@wsj.com