A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Japan's Nikkei index and various countries' stock market index prices outside a brokerage in Tokyo, Japan, February 22, 2022.
A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Japan's Nikkei index and various countries' stock market index prices outside a brokerage in Tokyo, Japan, February 22, 2022. Reuters / KIM KYUNG-HOON

U.S. Treasury yields hit two-and-a-half year highs on Monday, while oil prices fell as investors weighed positive comments from cease-fire talks between Russia and Ukraine alongside expectations of the first rate hike by the U.S. Federal Reserve.

Russian and Ukrainian officials gave their most upbeat assessments on Sunday of the progress in their talks to end the conflict, with some delegates saying draft agreements could be reached within days.

European stocks closed higher on Monday on the tentative hopes of progress in the peace talks while oil prices retreated to their lowest in two weeks on the prospects of increased global supplies.

"Everything seems to be heading towards an acute point where we should have some headway. The fact is neither side has a complete edge and as a result talks are the most sensible outcome, with some type of resolution," said Thomas Hayes, chairman at Great Hill Capital in New York.

Investors expect the U.S. central bank to hike rates more aggressively this year, after data on Thursday showed that annual inflation in February rose at the fastest pace in 40 years, forcing Americans to dig deeper to pay for rent, food and gasoline.

Benchmark U.S. 10-year yields rose to 2.1099%, the highest since July 2019.

"The Fed is expected to hike rates by 25 basis points (this week) and you're seeing the 10-yields rise, which is positive from a yield curve perspective and implies the flattening may be coming to an end. We may avoid an inversion and a recession in the near term," Hayes said.

The pan-European STOXX 600 index rose 1.24% while the MSCI's gauge of stocks across the globe shed 0.24%. Overnight in Asia, the Nikkei 225 index closed up 0.58%.

On Wall Street, the Dow Jones Industrial Average rose 0.66% to 33,161.13, the S&P 500 lost 0.06% to 4,201.92 and the Nasdaq Composite dropped 1.18% to 12,692.11.

In early afternoon trading, Brent crude futures were down 6.57% at $105.27, U.S. West Texas Intermediate (WTI) crude was 6.4% lower at $102.34 per barrel.

The U.S. dollar edged lower against a basket of currencies on Monday, but held near a 21-month high hit last week, helped by hopes of peace between Russia and Ukraine.

The dollar index fell 0.21%, with the euro up 0.59% to $1.0973.

Gold prices fell as U.S. Treasury yields rose. [L3N2VH0NN]

Spot gold dropped 1.3% to $1,959.62 an ounce, while U.S. gold futures fell 0.9% to $1,964.70 an ounce.