NEW YORK - U.S. Treasury yields rose on Thursday, reversing some of the relief rally in prices on Wednesday, when yields dropped after the Federal Reserve raised interest rates by three-quarters of a percentage point.

Yields - which move inversely to prices - had been rising this week after worsening inflation data on Friday but the Fed's expected decision on Wednesday to hike its benchmark interest rate by 75 basis points - the biggest increase in nearly 30 years - led to a sharp rally as some investors and analysts had feared an even higher increase.

That was partly reversed on Thursday, when central banks in Europe raised rates and in some cases caught markets off guard with big hikes, as they seek to fight surging inflation.

"Treasuries have seen a very lively bear-flattening after Wednesday’s relief rally," Citi strategists said, referring to a dynamic where short-term interest rates increase at a faster pace than long-term ones. "The surprise 50bp hike from the SNB has only accelerated the retracement from yesterday’s moves", they said.

The Swiss National Bank raised its policy interest rate for the first time in 15 years in a surprise move on Thursday, while the Bank of England hiked borrowing costs by a quarter of a percentage point.

Benchmark U.S. Treasury 10-year yields rose to 3.429% from a close of 3.395% on Wednesday, while two-year Treasury yields - more sensitive to interest rate changes by the U.S. central bank - were up at 3.29% from 3.279% on Wednesday. The closely watched yield curve between U.S. two-year and 10-year notes steepened to about 14 basis points on Thursday, after inverting by 5 basis points earlier this week. An inversion in this part of the curve is seen as a reliable indicator that a recession is likely in one to two years.

Fed Chair Jerome Powell indicated on Wednesday that while another 75 basis points hike at the next central bank's meeting in July was possible, he did not expect such supersized moves to be common - a comment that gave some support to both the stock and the bond markets.

Barclays said in a note on Wednesday, after the Fed's meeting, that it expected the bank to shift back to a 50 basis points hike in July, due to signs of a slowdown in U.S. consumer and housing demand.

Fed funds futures on Thursday were pricing in 67 basis points of tightening in July . Breakeven rates on five-year Treasury Inflation-Protected Securities (TIPS), a measure of expected annual inflation for the next five years, eased to 2.911% on Thursday from 2.985% on Wednesday.

"Markets reacted essentially in a dovish direction despite the largest rate hike in a generation, which is more indicative of just how far rates had gone in pricing in a hawkish surprise over the past few days," Barclays strategists said in a note.

(Reporting by Davide Barbuscia; editing by Jonathan Oatis)