TREASURIES-Yields surge to one-year high as oil prices?and inflation data rattle markets

(Updated in New York afternoon time)

* Oil prices jump 3%

* Trump says his patience with Iran is running out

* 10- and 30-year yields at highest levels since May 2025

By Karen Brettell

NEW YORK, May 15 (Reuters) - U.S. Treasury yields climbed to their highest levels in a year on Friday as a spike in oil prices tied to ongoing energy disruptions in the Middle East, inflation concerns and expectations for a stronger economy led investors to reevaluate where interest rates are likely to land. Oil prices gained more than 3% on Friday after comments by U.S. President Donald Trump and Iran's foreign minister further dented hopes of a deal to end ship attacks and seizures around the Strait of Hormuz. Trump said his patience with Iran is running out and that Chinese President Xi Jinping agreed during their talks in Beijing that Tehran must reopen the strait. Iran has "no trust" in the United States and is interested in negotiating only if Washington is serious, Iranian Foreign Minister Abbas Araqchi said on Friday.

"We expected more out of the meeting in China with Trump, and it didn't seem like there was much progress made in terms of the outcome in the Middle East," said Mike Sanders, head of fixed income at Madison Investments in Madison, Wisconsin.

"The bond market now is finally like, maybe this quick resolution and snap back in energy prices isn't going to happen and we've got to price in longer-term inflation expectations," Sanders said. Investors have already been rattled by strong inflation reports this week showing energy disruptions are being reflected in some inflation-based measures. U.S. consumer inflation saw the largest annual gain in three years last month, while U.S. producer prices posted their biggest increase in four years.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, was last up 9.4 basis points at 4.086%, the highest since March 2025.

The yield on benchmark U.S. 10-year notes rose 14 basis points to 4.599%, the highest since May 2025, and is heading for its largest one-day increase since April 2025.

The 30-year bond yield increased 11.8 basis points to 5.131%, also the highest since May 2025 and on track for its biggest one-day gain since May 2025.

Heavy corporate supply as companies rush to finance spending on artificial intelligence and signs of accelerating U.S. economic growth are adding to the move, said John Luke Tyner, head of fixed income and portfolio manager at Aptus Capital Advisors in Fairhope, Alabama. Data on Friday showed U.S. factory production posted its largest increase in 14 months in April, driven by motor vehicles and demand for technology goods amid an artificial intelligence spending boom.

Bonds may also be losing some appeal as they fail to protect against higher price pressures.

"Bonds aren't going to necessarily hedge your portfolio when inflation is high and volatile. And I think you're seeing folks shift strategic asset allocations away from bonds and into commodities, into oil, into agriculture products, into other vehicles that can be better suited to provide that insulation to the downside," Tyner said.

(Reporting by Karen Brettell; Editing by Hugh Lawson, Kirsten Donovan and Will Dunham)