By Mark DeCambre, MarketWatch , Anneken Tappe

Traders await Wednesday's anticipated interest rate hike

Treasury yields rose on Tuesday as traders positioned themselves a day ahead of the conclusion of a two-day Federal Reserve meeting that is expected to reveal an upbeat outlook for the economy and culminate in the sixth interest-rate increase since December 2015.

How are Treasurys performing?

The 10-year Treasury note yield climbed 3 basis points to 2.874%. The 2-year note yield , which is the most sensitive to interest-rate expectations, edged up by 2 basis point to 2.324%. The 30-year bond rate , the most influenced by the outlook for inflation, gained 3 basis points to 3.109%.

Bond prices falls as yields rise, and vice versa.

What's driving Treasury prices?

The Fed meeting, the first helmed by Chairman Jerome Powell since taking over for Janet Yellen, is slated to be one of the more attentively watched gatherings because of bond investors' concerns around inflation and a nearly 9-year-old economic expansion.

Read: 5 things to watch from the Fed decision (http://www.marketwatch.com/story/5-things-to-watch-from-the-fed-decision-2018-03-19)

The Fed's policy statement will be accompanied by the so-called dot plot, an aggregate of policy makers' forecasts for future interest rates. Analysts consider a quarter percentage point hike a near-certainty, with the futures market pricing in the increase to 100%, at the conclusion of the FOMC meeting on Wednesday.

Market participants anticipated that Fed members will lift their projections for economic growth, with a possible fourth rate increase to 2018 likely, on the back of a labor market that has appeared solid. So far, only three rate increases are expected for the year.

Read: What to expect from the new Fed dot plot on interest rates (http://www.marketwatch.com/story/what-to-expect-from-the-new-fed-dot-plot-on-interest-rates-2018-03-16)

Perhaps the more closely watched component of the gathering will be the Fed's outlook for inflation and rising prices that have bedeviled many, but which also has recently shown signs of tilting toward the central bank's 2% annual target. Hotter-than-expected signs of inflation, including rising consumer prices and wages, may compel policy makers to ratchet up the pace of rate increases, which could in turn rattle equities--lifting borrowing costs for corporations--and bonds.

Investors also have been closely following the yield curve, or the line that plots the yields of maturities from shortest to longest. The yield curve normally slopes upward because bond buyers demand a higher premium for lending money further into the future. However, when that slope flattens or inverts, it can signal that government-bond investors are harboring a more bearish economic outlook. Some fret that hiking rates too quickly can hasten a flattening of the curve, typically represented by the differential between 2-year and 10-year Treasury notes.

What are strategists saying?

"The curve has since resumed its flattening trend, with the spread currently near 55 [basis points]. The slope of the yield curve matters, because historically it has been an excellent predictor of turning points," wrote Joseph LaVorgna, chief economist at Natixis. A so-called yield curve inversion has preceded each of the nine economic recessions in the U.S. since 1955, according to Natixis research.

This flattening "could be due to a lower term premium, or what is known as the extra risk investors demand in order to hold longer-term maturities," LaVorgna added. Modest inflationary pressures, a 10-year yield "anchored by the fact that the U.S. is the highest long-term yielder among industrialized economies," and the Fed's high transparency regarding its normalization path could be reasons, LaVorgna said.

What else is on investors' radars?

On Monday, government bonds drew some haven bidding as a selloff in shares of Facebook Inc.(FB), resulting in the social network's worst one-day drop in about four years (http://www.marketwatch.com/story/facebooks-nearly-6-drop-puts-it-on-pace-for-worst-daily-decline-in-about-2-years-2018-03-19), rattled investors, sending the Dow Jones Industrial Average , the S&P 500 index and the Nasdaq Composite Index , sharply lower (http://www.marketwatch.com/story/dow-futures-slide-more-than-100-points-as-facebook-fall-leads-us-stocks-lower-2018-03-19).

Meanwhile, in Europe, the yield for the British 10-year government bond , known also as gilts, was up 4 basis point at 1.483%, amid talks between the U.K. and the European Union over its effort to leave the trade bloc.

The German 10-year bond yield , often viewed as a proxy for the health of Europe's economy, was 2 basis point higher to yield 0.583%.

(END) Dow Jones Newswires

March 20, 2018 13:45 ET (17:45 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.