By Sara Sjolin, MarketWatch , Sunny Oh

10-year touched an intraday high of 2.996%

The yield on 10-year U.S. notes took a stab at the psychologically important 3% level before pulling back Monday as strengthening inflation prospects added to expectations of a more hawkish approach from the Federal Reserve.

What are Treasurys doing?

The benchmark 10-year Treasury note yield picked up 2.4 basis points to 2.973%, its highest level since January 2014, after scraping an intraday high of 2.996%, according to Tradeweb data.

The two-year note yield gained 1.7 basis points to 2.474%, a fresh decadelong high, while the interest rate on the 30-year bond rose 0.5 basis points to 3.143%, the highest since March 9.

Bond prices move in the opposite direction of yields.

What's driving the market?

U.S. yields started to head higher last week after a flurry of Fed speakers rekindled the idea that the central bank could raise interest rates four times in 2018 and not the three times the rate-setters have previously indicated. On Friday, traders on the fed-fund futures market saw a 40.2% chance of a total of four hikes this year, compared with a 28.6% chance on March. 23.

Rising inflation expectations also added to the notion that rates may have to go up quicker than previously forecast. The outlook for higher consumer prices was partly spurred by a rally in oil and metals prices, which usually lifts headline inflation data. Economists say inflation is likely to hit 2% this year, the central bank's inflation target, which could prompt the Fed to step up the pace of monetary tightening from two additional rate hikes to three this year.

Traders will deal with a series of government bond auctions throughout this week, a test of appetite for debt as yields return to appetizing levels. A sale of two-year Treasury notes will take place Tuesday.

See: Signs of higher inflation are popping up everywhere (http://www.marketwatch.com/story/its-not-just-oil-signs-of-higher-inflation-popping-up-everywhere-2018-04-19)

What are strategists saying?

"One of the main themes over the last week or so has been the revival of the rising inflation/rising yield story. Oil prices have been rising recently (the highest since December 2014) and now metal prices are rising too as the U.S. sanctions on Russia threaten to disrupt global supplies of aluminum and other industrial metals," said Marshall Gittler, chief strategist at ACLS Global, in a note.

"Bond yields in Europe and the U.S. shot up, possibly in reaction, and U.S. 10-year yields are closing in on 3% again. The probability of four rate hikes in the U.S. this year hit the highest level of the year, while the probability of only one or two hikes continues to fall," he added.

"[Investors] have bit off too much duration recently and slide through 3% is [inevitable] given Treasury supply, economic growth and U.S. deficit predictions," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

What else is on investors' radar?

The Chicago Fed National Activity Index for March fell to 0.10 (http://www.marketwatch.com/story/chicago-fed-economic-measure-cools-in-march-from-februarys-nearly-two-decade-high-2018-04-23)from February's reading of 0.98, a two-decade high. Existing home sales rose to a 5.60 million seasonally adjusted annual pace in March (http://www.marketwatch.com/story/existing-home-sales-roar-back-in-march-even-as-supply-crunch-worsens-2018-04-23), above the MarketWatch consensus of 5.52 million.

What are the other assets doing?

   The 10-year German government bond yield   rose 3.6 basis points to 0.635%. 
 

(END) Dow Jones Newswires

April 23, 2018 16:48 ET (20:48 GMT)