The 10-year US Treasury yield rose to the highest in almost two decades, reaching 5.02% on Tuesday, surpassing a peak from 2023 and hitting the highest level since 2007. The milestone comes amid a global bond selloff driven by surging energy prices, mounting debt and inflation. The move follows an increase in global oil prices as risks to Middle East supplies grow, raising the stakes ahead of the Federal Reserve's interest-rate decision on Wednesday, where investors expect officials to raise short-term borrowing costs for the first time since July 2023.

If they don't hike, or if Fed Chairman Kevin Warsh signals less monetary tightening, bond investors may demand even higher yields. Bond yields have been rising globally since the US and Israel launched an assault on Iran in late February, disrupting Middle Eastern oil and gas supplies. Central banks are no longer buying government bonds as part of quantitative easing programs, and demand from traditional buyers is cooling. "It would be very difficult for the Fed to leave rates unchanged this week without eroding its inflation-fighting credibility," said Vail Hartman, a strategist at BMO Capital Markets. "The market is vulnerable to not only an unexpected hold, but also a dovish hike that entails a more patient takeaway from the dot-plot or press conference.".