LONDON, March 14 (Reuters) - U.S. Treasury yields shot higher on Monday, with short and long-dated yields rising to their highest levels since 2019, as accelerating inflation unnerved investors just days before the Federal Reserve is expected to kick off a rate-hiking cycle.
Two-year U.S. Treasury yields climbed to 1.83%, the highest level in around 2-1/2 years.
As London trade got underway, 10-year yields rose to 2.106% , the highest since July 2019. They were last up 8 basis points on the day.
Across the U.S. bond curve, yields were 7-10 bps higher on the day, as hopes for progress in Russian-Ukraine peace talks bolstered risk assets and dented demand for safe havens.
Ukraine said it would seek to discuss a ceasefire, immediate withdrawal of troops and security guarantees with Russia on Monday after both sides reported rare progress at the weekend, despite fierce Russian bombardments.
In Europe, German and British bond yields experienced similar sharp rises .
Unease over high inflation, exacerbated by Russia's invasion of Ukraine, also helped explain the selloff in bond markets.
With U.S. inflation at almost 8%, the war in Ukraine could stoke price pressures through increased energy costs, further disruption to supply chains, or even a reordering of global trade and governance that could mean persistently higher prices.
"The fear is that central banks don't have what it takes (to stamp out inflation)," said Colin Asher, senior economist at Mizuho.
"There is a case to be made for faster policy tightening -- core inflation is at 6% and they are still buying assets. You could argue this gradualism approach is what's concerning the market," he added.
The Fed is widely expected to conclude a two-day policy meeting on Wednesday with a quarter-point rate hike.
The U.S. 5-year forward inflation-linked swap, a market gauge of long-term inflation expectations, rose to around 2.81%, its highest since 2014.
Bearish bets on U.S. Treasury 10-year note futures meanwhile hit their highest since February 2020 in the week ended March 8, as U.S. Treasuries suffered one of their worst weeks since the global financial crisis, Commodity Futures Trading Commission data showed on Friday.
Fed chief Jerome Powell has flagged multiple interest rate increases this year, citing the economy's strong labour market and persistently high inflation.
"We expect the Fed to project that they'll do what is needed to meet their mandates even in the context of the geopolitical uncertainties, but that the geopolitical developments could in fact reinforce upside inflation risks," Citi analyst Ebrahim Rahbari said in a note. (Reporting by Andrew Galbraith in Shanghai and Dhara Ranasinghe and Sujata Rao in London; Editing by Jacqueline Wong and Emelia Sithole-Matarise)
