U.S. Treasury yields rose on Tuesday as a Federal Reserve monetary policy meeting got under way.
The two-year note yield climbed to 2.504 percent and hit its highest level since September 2008, when it hit 2.542 percent. The yield on the benchmark 10-year Treasury note was also higher at 2.966 percent, while the yield on the 30-year Treasury bond rose to 3.129 percent. Bond yields move inversely to prices.
The Federal Open Market Committee (FOMC) began its two-day monetary policy meeting on Tuesday. Most investors are not expecting the central bank to tighten its policy. Expectations in the market for a rate hike are just 5.7 percent, according to the CME Group's FedWatch tool.
However, investors will be on the lookout for clues about the central bank's views on inflation and the economy.
"A key focus for us this week will be the extent to which the Fed statement on Wednesday jawbones markets to force pricing for hikes in 2018 higher," Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said in a note.
"The current pace of repricing in fed funds is not immediately problematic for the Fed and there is yet time to price more into the curve, though we'd argue that at the June meeting, it's likely the markets will have to come to grips with the possibility of a fourth hike in 2018 and price more appropriately," Lyngen said.
In economic news, the ISM manufacturing index hit 57.3 in April, down from 59.3 in March. However, ISM also said prices increased at a faster rate, reaching 79.3, up from 78.1.
"That's undoubtedly a reflection of higher materials cost," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group. "We think inflation is headed higher in the middle of the year."