US President Donald Trump stated on Tuesday that the Strait of Hormuz is “open and operating normally”, yet he ruled out new negotiations with Tehran. With the expiry of the temporary ceasefire, the diplomatic deadlock between the United States and Iran has cast a shadow over the outlook for this world’s most critical energy shipping lane. Markets have not taken Trump’s comments at face value, and both oil and bond markets are sending stronger risk signals.
Trump wrote on Truth Social: “There are no negotiations or discussions underway with the Islamic Republic of Iran, nor are any scheduled.” The statement indicates that geopolitical uncertainty surrounding the Strait of Hormuz can hardly be eased in the short term. Commodity data firm Kpler shows the five-day average of vessels transiting the strait stands at only 10, the lowest level since May, reflecting a notable slowdown in shipping activity.
Despite Trump’s claim that the strait is “open”, the market has not accepted this assertion. Brent crude remains above $91 per barrel, and US West Texas Intermediate (WTI) crude futures rose 0.52% in ASIan morning trading to $85.38. High oil prices show traders are still pricing in potential supply disruptions and shipping risks.
Escalating Shipping Risks in the Strait of Hormuz
A cargo ship was attacked while exiting the Strait of Hormuz, killing one crew member. Notably, the vessel was sailing in Omani territorial waters, the so-called “southern route”. While the US military assists vessels choosing this route, reports indicate Iran retains the capability to target ships travelling along this corridor, further fuelling concerns over security in the strait.
The Strait of Hormuz serves as a critical chokepoint for global crude oil and liquefied natural gas shipments. Any disruption to shipping can quickly spill over into energy markets. Slower vessel transit, rising attacks and stalled diplomatic talks are collectively lifting market expectations for crude supply risks.
Surge in US Treasury Yields
As tensions escalate in the Middle East, US Treasury yields have climbed to multi-decade highs, and hopes for an end to the conflict have faded rapidly. Rising yields reflect not only shifts in risk sentiment but also worsening US fiscal conditions.
The US fiscal deficit hit $432.3 billion in July, the largest monthly shortfall since March 2021. The cumulative deficit for the current fiscal year has reached nearly $1.8 trillion to date. Interest payments on almost $40 trillion of national debt have cost the government roughly $1.2 trillion this year. Mounting fiscal pressure has left bond markets cautious over America’s long-term financing outlook.
Global bond yields moved broadly higher on Tuesday. Germany’s benchmark 10-year government bond yield rose to a 15-year high, while Japan’s 10-year yield broke the 30-year peak touched earlier this year. Analysts widely agree that geopolitical risks, widening fiscal deficits and shifting global rate expectations are pushing long-end yields higher across nations.
Resurgent Tariff Threats
Trade tensions are heating up again. A 50% tariff imposed by Trump on around $20 billion of Canadian imports is set to take effect within hours unless Washington and Ottawa strike a last-minute deal. Affected goods include alcoholic beverages, dairy products, cement and even ice hockey sticks.
According to Bloomberg, Trump spoke with Canadian Prime Minister Mark Carney late Monday US time and planned a follow-up call on Tuesday. However, Fox Business cited sources saying Monday’s conversation failed to persuade Trump to delay the impending retaliatory tariffs. If the tariffs take effect as scheduled, North American trade friction may further dent market risk appetite and add uncertainty to already strained global asset pricing.