Washington DC [US], May 20 (ANI): Yields on the US government's longest-dated bonds shot up to their highest levels since 2007 on fears of inflation rising amid uncertainty around the Iran war and no clarity on when the critical Strait of Hormuz will open.

The 30-year bond yields rose seven basis points to 5.20% on Tuesday, indicating how jittery the investors are as concerns spike over price rise and a subsequent hawkish US Fed raising interest rates. The new US Federal Reserve chair Kevin Warsh takes over the reins of the most powerful central bank in the world on Friday.

The bond rout was seen in the European and Japanese markets, especially after a lacklustre China trip by Trump, where he failed to get any significant headway on the Iran front.

Yields on the benchmark 10-year bonds, which have an impact on the mortgage rates, surged to their highest level in over a year to about 4.67%.

Investors are demanding higher yields as they fear rising inflation could chip away at their returns. Traders are betting that an interest rate hike could come as soon as this year, a CNN report said. Concerns around the rising government deficit are also prompting investors to seek higher returns on longer-dated bonds.

The US consumer prices in April rose highest in the last three years to 3.8% as the impact of higher gasoline prices starts taking a toll on the economy. Oil prices have spiked after the Iran war started and have remained highly volatile since then.

Rising yields threaten that borrowing costs could go higher for the US government, which is already confronting rising deficits.

Higher yields are likely to cause consternation for the US President Trump, who is vying for interest rate cuts that also led to public disagreement with outgoing Federal Reserve chair Jerome Powell. He is leaning on the incoming Fed chief Kevin Warsh to cut interest rates. But that looks unlikely at the moment as inflation fears stoke worries for both households and corporations.

Higher yields may not bode well for equities as investors could shift to bonds seeking higher returns. Higher interest rates also mean that the US economy, which has done fairly well, could see some slowdown. (ANI)