By Ellie Ismailidou, MarketWatch

Treasury yields declined Friday as traders braced for the August jobs report, which could determine the timing of a potential interest-rate increase by the data-dependent Federal Reserve.

The yield on the 10-year Treasury note declined 3.3 basis points to 2.135%, building on a drop Thursday that had pushed the yield to its lowest level in a week, according to Tradeweb. Meanwhile, the yield on the two-year note slipped 1.1 basis point to 0.689% and the yield on the 30-year bond shaved off 3.9 basis points to 2.908%.

Bond yields fall when prices rise and vice versa.

The monthly jobs report is scheduled for release at 8.30 a.m. Eastern Time and could trigger market volatility ahead of the holiday weekend. Read: When do markets close for Labor Day (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB8QqQIwAGoVChMI8Kqu3aPdxwIVhTk-Ch2s2gwn&url=http%3A%2F%2Fwww.marketwatch.com%2Fstory%2Fwhen-do-markets-close-for-labor-day-2015-09-03&usg=AFQjCNGmyGKIRjkDIGClbzV4ybP9Kzqv6Q&bvm=bv.101800829,d.cWw)

Traders will scan the nonfarm payrolls report (http://www.marketwatch.com/story/what-to-watch-in-the-critical-august-jobs-report-2015-09-03) for clues on whether the Fed feels confident enough in the U.S. economy to raise rates at its two-day meeting starting Sept. 16 for the first time in nearly a decade.

"Today certainly could be a defining moment and it seems the outcome is clear; if we get a strong enough report the Fed will hike in September," David Ader, head of government bond strategy at CRT Capital Group, said in a note.

But regardless of the outcome, this will be "the first purely domestic input for us to focus on in a bit, given the external influences of the last several weeks or months," Ader said.

Falling oil prices along with turmoil in global equity markets fueled by concerns over the slowdown in China's economy have recently sparked strong demand for U.S. Treasurys, which are considered a global haven investment. Read: Foreign buyers flock to Treasurys as global volatility sets in (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCEQqQIwAGoVChMIy7DYsaXdxwIVhVc-Ch2cEwB5&url=http%3A%2F%2Fwww.marketwatch.com%2Fstory%2Fforeign-buyers-flock-to-treasurys-as-global-volatility-sets-in-2015-09-03&usg=AFQjCNGN2XMpWYCocJGSmS8ql3i_q-1bEg&bvm=bv.101800829,d.cWw)

(https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCEQqQIwAGoVChMIy7DYsaXdxwIVhVc-Ch2cEwB5&url=http%3A%2F%2Fwww.marketwatch.com%2Fstory%2Fforeign-buyers-flock-to-treasurys-as-global-volatility-sets-in-2015-09-03&usg=AFQjCNGN2XMpWYCocJGSmS8ql3i_q-1bEg&bvm=bv.101800829,d.cWw)Growing appetite for U.S. government bonds has pushed Treasury prices higher and drove yields lower, but expectations that the Fed could raise rates have kept yields from plummeting below the four-month low reached on Aug. 24.

"The U.S. jobs data [are] irrefutably the preeminent moment to re-shape the Fed expectations. In this context and as Friday's NFP read is the last labor market data before the very much expected FOMC meeting in September 16-17th, market volatility will certainly rise to significant levels," Ipek Ozkardeskaya, market analyst at London Capital Group, said in a note.

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(END) Dow Jones Newswires

September 04, 2015 08:01 ET (12:01 GMT)