10-year Treasury yield climbs to highest level since 2007

The benchmark 10-year Treasury yield climbed to its highest level since 2007 on Tuesday as a sell-off in U.S. government debt deepened ahead of the Federal Reserve's interest-rate decision, which could ripple through the economy.

The 10-year yield jumped 5 basis points to 5.014% as of 6:29 a.m. ET. Earlier in the session, it scaled to 5.041%.

One basis point equals 0.01 percentage point, and yields and prices move in opposite directions.

The yield on the longer-dated 30-year Treasury bond, more sensitive to geopolitical risks, rose 5 basis points to 5.381%. The 2-year Treasury note yield climbed about 3 basis points to 4.663%.

The move comes ahead of the Federal Reserve's two-day policy meeting beginning Tuesday, with markets pricing in higher chances of a quarter-point rate hike after August inflation remained well above the central bank's 2% target.

Traders are pricing in a more than 92% chance that the Fed will raise rates by 25 basis points in its latest meeting, according to the CME FedWatch tool.

"U.S. 10-year treasuries are highly sensitive to inflation expectations, and with inflation gauges still above the Fed's target of 2%, we believe this tight correlation will likely persist for a while," said Jonathan Liang, Standard Chartered's CIO of fixed income and FX.

The tight relationship between oil and Treasurys could add further upward pressure on yields if crude prices remain elevated, as higher energy costs feed into inflation expectations, experts told CNBC.

The one-month rolling correlation between front-month West Texas Intermediate crude and the 10-year Treasury yield has climbed to 0.96, according to BMO Capital Markets.

"Speaking simplistically, higher oil prices lead to higher inflation expectations and vice versa," said Steve Sosnick, chief strategist at Interactive Brokers.

"Normally, the relationship isn't as clean as it is now, but the geopolitical drivers behind the price of oil and global inflation are so prominent that the normally modest correlation has become much tighter," he told CNBC via email.

"As long as oil prices remain firm and continue to drift higher, this will add pressure to interest rates," he added.