NEW YORK: US Treasury yields advanced on Monday in thin trading, with several global markets closed, as investors still priced in an interest rate hike by mid-2022 despite the surge in COVID cases after the holidays.

Financial markets are closed due to holidays in several economies such as the UK, Japan, mainland China, and Australia.

Yields on US two-year notes, which are sensitive to rate hike expectations along with 5-year notes, soared to their highest level since March 2020. Benchmark US 10-year and 5-year yields rose to six-week peaks.

"It appears the sell-off today is being driven by the market viewing the Federal Reserve as still being likely to hike by mid-2022 despite the surge in COVID cases," said Gennadiy Goldberg, senior rates strategist, at TD Securities in New York.

"US equities are also trading on a firmer footing, potentially on the view that despite the surge in COVID cases the impact on the economic recovery is likely to be mild. I would add that it's still early in the New Year and most of the world is off for the holiday, so thinner liquidity may certainly be exacerbating market moves," he added.

Futures on the federal funds rate on Monday have fully priced in a quarter-percentage-point tightening by the Fed by May next year. Fed funds futures are also betting on three hikes next year consistent with the Fed's new economic projections.

In mid-morning trading, US 10-year yields hit a six-week high of 1.607% and was last up 10 basis points at 1.6019% , US 30-year yields were up 8 basis points at 1.9708%.

Action Economics, in its blog, said the break of the 50-day moving averages on the 10-year rate at 1.521% and the 30-year at 1.908% have lifted rates.

"The market is also seeing Omicron more likely to boost inflation than derail the economy," Action Economics said, referring to the highly-transmissible coronavirus variant. On the short end of the curve, US 2-year yields hit 0.804% and was last up 6 basis points at 0.795%. US 5-year yields hit a six-week high as well of 1.362% and were last up 9 basis points at 1.3540%.