TREASURIES-Yields rally after slight dip in early trading

(Updates with latest market activity throughout)

By Matt Tracy

May 19 (Reuters) - Yields on U.S. Treasuries ticked higher in Tuesday morning trading after an earlier dip following an overnight pause in the Iran conflict and a decline in oil prices.

The yield on the benchmark 10-year Treasury note was last up 4.2 basis point (bp) at 4.627%. It had climbed as high as 4.659% on Monday, which was its highest level in 15 months.

The two-year Treasury note's yield, which typically moves in step with interest rate expectations for the Federal Reserve, was last up 4.2 bps at 4.086%. It reached a 14-month high of 4.105% early Monday.

Yields climbed in overnight Monday trading caused by a sell-off in U.S. and global bond markets following a rise in crude oil prices past $111 per barrel. Rising oil prices on Monday and last week exacerbated bond investors' inflation concerns, as deal talks in the ongoing conflict with Iran showed little progress.

Oil prices were down slightly on Tuesday, with crude oil prices just over $110 per barrel.

The 30-year Treasury bond's yield, which is seen as a barometer of political risk, was up 2.9 bps to above 5.15% after reaching its highest level in over a year on Monday. Analysts anticipate the 30-year's yield could rise further in the coming weeks.

"People are not going to want to add duration risk until there's clarity around the Middle East," said Vail Hartman, U.S. rates strategist at BMO Capital Markets.

"I wouldn't be surprised if the selloff extended and ... new yield peaks established before we see a wave of buying," he added.

Data last week showed U.S. inflation was accelerating due to rising energy prices, with market participants worried that even a near-term end to the war may not bring energy prices down. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was last at 53.69 bps.

Investors are now pricing in a 46.6% chance that the Fed could raise rates in December, and a 94.2% chance it maintains current rates at its next meeting in June, according to the CME FedWatch tool.

The Treasury Department is slated to auction 20-year bonds on Wednesday, which market participants will watch closely for signs of cooling investor demand. (Reporting by Matt Tracy in Washington; Editing by Nick Zieminski)