US Treasury bond prices declined slightly on the morning of May 13 as the 10-year Treasury yield rose to 4.579%, reflecting renewed inflation concerns triggered by surging oil prices amid escalating US-Iran military tensions. The yield increase occurred as President Donald Trump stated the US would control and possibly operate the Strait of Hormuz, directly challenging Iran's recent blockade declaration. Treasury markets are repricing inflation risk as the conflict shows no signs of de-escalation despite mediation efforts.
Treasury Yields Rise Across Maturities on May 13 Morning
As of 9:15 AM Eastern Time on May 13, the 10-year US Treasury yield stood at 4.579%, up 1.10 basis points from the previous trading day's 3 PM benchmark, according to Yonhap Infomax's overseas interest rate intraday screen. The policy-sensitive 2-year Treasury yield rose 1.90 basis points to 4.227% during the same period. The 30-year Treasury yield increased 0.60 basis points to 5.077%. The yield spread between 10-year and 2-year Treasuries narrowed from 36.0 basis points the previous day to 35.2 basis points. Bond prices and yields move in opposite directions.
Trump Vows US Control of Strait of Hormuz Amid Iran Standoff
President Donald Trump stated on May 13 that he would strike Iran very hard. Trump told Fox News, "We will continue to control the Strait of Hormuz and probably operate it." He added, "We will be the guardians of the strait and should be compensated for that work. We will protect it and receive payment for that protection." Trump's remarks were interpreted as a willingness to confront Iran, which has been seeking to control the Strait of Hormuz and collect transit fees.
Iran responded on May 13, stating, "We will not allow the US to interfere in the Strait of Hormuz," and warned, "If the war expands, the flames will spread throughout the entire region." The military confrontation, which resumed after Iran attacked merchant ships transiting Hormuz, has not subsided despite mediation efforts by intermediary nations. Iran declared a re-blockade of the Strait of Hormuz over the weekend to pressure Trump, prompting Trump to take a harder stance.
Reports emerged that Israel shared intelligence with Trump's team about an Iranian assassination attempt on Trump. If accurate, this development strengthens expectations that the conflict will not easily subside. Trump wrote on his Truth Social platform on May 10, "If Iran assassinates or attempts to assassinate me, I have the readiness, will, and capability to completely annihilate and totally destroy all of Iran."
CME FedWatch Shows 86% Probability of Rate Increase by December
Despite the escalating US-Iran conflict, market expectations for US interest rate increases this year have not changed significantly, indicating the market is not yet seriously pricing in a prolonged military confrontation. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the federal funds rate futures market reflected approximately 86% probability that the benchmark interest rate will increase by 25 basis points or more by the end of December. The probability of a 25 basis point increase is 36.7%, while the probability of a 50 basis point increase is 34.2%.
FAQ
What caused US Treasury yields to rise on the morning of May 13?
Treasury yields rose as international oil prices surged amid escalating US-Iran military tensions, prompting markets to reprice inflation concerns. The 10-year Treasury yield increased 1.10 basis points to 4.579%.
What did President Trump say about the Strait of Hormuz on May 13?
Trump stated the US would control and possibly operate the Strait of Hormuz, telling Fox News that "we will be the guardians of the strait and should be compensated for that work."
What is the market's current expectation for US interest rate increases by December?
According to the CME FedWatch Tool, the federal funds rate futures market shows approximately 86% probability that the benchmark interest rate will increase by 25 basis points or more by the end of December.
