* Benchmark yields hit highest level since Sept 2014
* Oil futures rise on deal to cut output
* U.S. to sell $24 bln in 3-year notes, $20 bln 10-year
(Updates market action, adds comment)
By Gertrude Chavez-Dreyfuss and Richard Leong
NEW YORK, Dec 12 U.S. Treasury yields rose on
Monday, with benchmark 10-year notes climbing to more than
two-year peaks, after oil prices increased and as investors
expected the Federal Reserve's first interest rate hike in a
"We have the Fed decision coming up on Wednesday, and people
are unsure whether they should buy the dip here," said interest
rate strategist Gennadiy Goldberg of TD Securities in New York.
"We went to a key level earlier on at 2.50 percent in the
10-year, and while 2.50 seems attractive, we think it can back
up some more."
U.S. 30-year bond yields advanced to 17-month highs, while
those on two-year and three-year notes hit two-week peaks ahead
of a 10-year U.S. government debt later in the session.
A rebound in crude prices reinforced the notion that U.S.
inflation is on the rise with expectations of fiscal stimulus
from the Trump administration.
Oil futures gained as much as 6.5 percent after the
Organization of the Petroleum Exporting Countries and other
major producers reached their first agreement since 2001 to pare
output in a bid to deal with global oversupply.
Treasuries are also under pressure from Monday's U.S.
government auctions, especially the 10-year note sale.
Goldberg said lower prices for the note were setting it up
for a solid auction.
"But we're a little concerned about demand," Goldberg said.
"I am sure there are a lot of people who want to buy on the dip,
but if they expect yields to continue backing up, it could
temper some of that demand."
The U.S. Treasury Department will sell $24 billion
three-year notes at 11:30 a.m. (1630 GMT) and $20
billion in 10-year notes at 1 p.m. (1800 GMT).
The Treasuries supply comes before a widely expected
quarter-point interest rate increase from the Fed at its two-day
policy meeting on Tuesday and Wednesday.
In late morning trading, U.S. 10-year note prices
were down 8/32, while the yield rose to 2.493
percent from 2.464 percent late on Friday. Earlier Monday, the
yield struck 2.528 percent, its highest since Sept. 29, 2014,
according to Reuters data.
U.S. 30-year bonds were down 15/32. The yield
was 3.179 percent after rising to 3.215 percent, the highest
since July 2015.
U.S. three-year notes were flat at 1.424 percent ahead of
(Reporting by Gertrude Chavez-Dreyfuss and Richard Leong;
Editing by Chizu Nomiyama and Lisa Von Ahn)