LONDON - U.S. benchmark 10-year Treasury yields hovered at 3% for a second straight day on Tuesday, a day before the Federal Reserve was expected to deliver an aggressive 50 basis point interest-rate hike to contain high inflation.

In early London trade 10-year Treasury yields were steady on the day, having pushed above the key psychological level on Monday for the first time since late 2018.

As well as delivering an aggressive rate hike on Wednesday, the Fed is also set to give the nod to starting the process of reducing its asset holdings as another way to tighten financial conditions.

Overall moves in the U.S. bond market were relatively modest, suggesting some caution ahead of the Fed's two-day meeting that starts later on Tuesday.

Two-year Treasury yields were up 3 bps at 2.76%, not far off the highest levels since late 2018. Five-year yields were up around 2 bps on the day just above 3%.

Yields on 10-year inflation linked bonds, known officially as Treasury Inflation-Protected Securities (TIPS), touched their highest level since March 2020 at around 0.19%, having surged almost 30 bps over the last two trading sessions.

Except for extraordinary periods such as the collapse of Lehman Brothers in 2008 or the outbreak of COVID-19 in early 2020, this move joins the ranks of the five steepest two-day advances in the past 25 years for real or inflation-adjusted yields, UniCredit said in a note.

UniCredit added that the near 135 bps surge in 10-year real yields since early November matches the total increase during the Fed's 2004/06 tightening cycle and exceeds the total increase during the 1999/2000 and 2015/19 rate-hike cycles.

Money market futures tied to the Fed's policy rate show heavy bets on interest rates rising to a range of 3%-3.25% by year-end. The Fed's key rate is in a range of 0.25-0.5%.

(Reporting by Dhara Ranasinghe; Editing by Jan Harvey)