Global government bond yields turned lower in European midday trade ahead of the Federal Reserve's anticipated quarter-point rate hike and as oil prices fell.

Yields remained near multiyear highs reached Tuesday, however.

Yields have risen sharply recently in tandem with a steep increase in oil prices due to the worsening conflict in the Middle East.

An interest-rate increase would typically prompt investors to sell bonds, sending yields higher, but the prospect of a prolonged period of high inflation caused by elevated energy prices has worried investors. Those concerns could ease if the Fed acts decisively and shows a strong resolve to tackle inflation.

"Hopes are high for the Fed to upend the severe bond market selloff," Hauke Siemssen, rates strategist at Commerzbank, said in a note.

"A renewed oil price increase continues to pose significant risks."

The 10-year U.S. Treasury yield fell 1.9 basis points to 4.976%, having hit 5.041% Tuesday, the highest level since 2007, according to Tradeweb. The 10-year Bund yield declined 1.4 basis points to 3.525% after reaching 3.572% the previous day, the highest since 2009. Brent crude oil prices fell 1.7% to $106.90 per barrel.

Yields turned lower, having traded slightly higher earlier in the day, as investors awaited guidance from the Fed's new economic forecasts and Chairman Kevin Warsh's comments and the vote split.

"A hawkish hike scenario would feature a unanimous or near unanimous vote for a hike, dots closer to market pricing, and/or Warsh signaling further tightening," Elias Haddad, global head of markets strategy at Brown Brothers Harriman said in a note. "That would lift the dollar and weigh on long-term Treasury yields by reinforcing the Fed's inflation fighting credibility."

"A dovish hike scenario would feature a split vote for a hike, dots well below market pricing and/or Warsh framing the hike as insurance against inflation rather than the start of a sustained tightening cycle," Haddad said, adding that would weaken the dollar and keep long-term Treasury yields elevated.

Investors are concerned that elevated inflation needs to be dealt with and the Fed would risk yields rising even further if it were to hold rates, said Byron Anderson, head of fixed income at Laffer Tengler Investments in a note.

"I think the Fed needs to give the market a hike or risk a bigger selloff, with market expectations of over 90% for a hike," he said.

Strong U.S. jobs and inflation data have also suggested that the economy is robust enough to withstand a rate hike.

Given "multiple cross currents of uncertainty," however, a lasting bond rally looks unlikely for now, Anderson said. "We continue to hedge risk in our portfolios," he said.

Money markets price in a 91% probability of a 25-basis-point rate rise on Wednesday and a total of 94 basis points of rate increases--or almost four quarter-point hikes--over a 12-month horizon, according to LSEG.

The 10-year Treasury yield this week surpassed the key psychological 5% level and continued to hover just shy of that mark. The question for investors is whether 5% represents the peak or is simply a step in a longer-term repricing of U.S. government debt, said Arif Husain, head of global fixed income and CIO of fixed income at T. Rowe Price.

"A 5% 10-year Treasury yield, and eventually a 6% yield, remain well within the range of possible outcomes," Husain said.

Booming sovereign debt supply, sticky inflation and unattractive valuations in long-maturity U.S. Treasurys are all factors pushing yields higher, he added.

However, yields won't necessarily rise in a straight line and could even fall, Husain said.

"Greater Federal Reserve influence over longer-term rates could push yields lower, potentially with consequences for the U.S. dollar and inflation," he said.