(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.