The U.S. labor market sharply outperformed expectations Friday, as monthly employment growth and wage increases in May topped forecasts.

U.S. employers added 272,000 nonfarm payrolls in May, down from the downwardly revised 165,000 figure in April, according to the Bureau of Labor Statistics.

May Jobs Report: Key Highlights

• Nonfarm payrolls increased by 272,000 in May, a slowdown from April's 165,000 and far more than the 180,000 increase anticipated by Econoday.
• The unemployment rate inched higher from 3.9% to 4%.
• Average hourly earnings rose by 4.1% year-over-year, up from 3.9% in April and below the expected 3.9% increase.
• Hourly earnings increased by 0.4% on a month-over-month basis, accelerating from the 0.2% in the previous month and above the forecasted 0.3% rise.

• Nonfarm payrolls272,000/ 180,000/ 165,000 (revised down from 175,00)
• Unemployment rate4%/ 3.9%/ 3.9%
• Wage growth (YoY)4.1%/ 3.9%/ 3.9%

The hotter-than-anticipated jobs report points to tightening labor market conditions in the U.S., shaking investor optimism about potential interest rate cuts later this year.

In response, Treasury yields rose across the board immediately following the report Friday, reflecting rising fears of higher-for-longer interest rates. The two-year yield, which is highly sensitive to short-term rate expectations, spiked from 4.74% to 4.86%.

The U.S. dollar index (DXY), tracked by the Invesco DB USD Index Bullish Fund ETF (UUP  ), rallied by 0.5%.

Futures on major U.S. indices fell during the premarket on Friday. S&P 500 futures was down by 0.4% at 8:34 a.m., while Nasdaq 100 futures fell by 0.3%.

On Thursday, the SPDR S&P 500 ETF Trust (SPY  ) closed with a 1.2% gain.