UK 2-year yield surges 10bps as Trump slaps 20% Hormuz fee

A 20 percent fee on all cargo passing through the Strait of Hormuz, announced by former President Donald Trump, sent UK gilt yields surging and traders repricing central bank rate hike expectations.

The UK two-year government bond yield jumped more than 10 basis points to 4.3465 percent on Monday, its highest intraday level since June 11, after Trump said the U.S. would impose a 20 percent charge on goods transiting the strategic waterway. The move ricocheted through global markets, pushing Brent crude up almost 4 percent earlier in the session and lifting the dollar broadly.

"The bond market is pricing in a supply shock that feeds directly into inflation expectations," said Elena Fischer, geopolitical risk analyst at Edgen. "A sustained closure or tolling of the Strait of Hormuz would raise import costs across Asia and Europe, forcing central banks to reconsider their easing timelines."

The 20 percent fee compounds an already volatile backdrop. Iran and the U.S. traded attacks in the Gulf over the weekend, with Tehran claiming to have closed the strait to unauthorized vessels. President Trump insisted the waterway remained open to commercial traffic, and U.S. officials said 20 ships were escorted through in the prior 24 hours. Still, ship tracking sites showed no vessels in the narrowest part of the strait on Monday, or at least none with their transponders active.

The Strait of Hormuz handles about 21 percent of global oil consumption, making any disruption a direct threat to energy costs. Brent crude traded near $78 a barrel after touching $79 earlier, up from $72 before the escalation. The last time a similar supply threat emerged — during the 2019 tanker attacks near Fujairah — oil spiked 15 percent over three weeks while the S&P 500 shed 3 percent.

Rate Hike Bets Resurface

The fee announcement landed as markets were already on edge about inflation. U.S. inflation data for June, due Tuesday, is expected to show the headline rate at 4.2 percent, with some cooling from falling gasoline prices — a trend that could now reverse. Deutsche Bank analysts noted that the probability of a Federal Reserve rate hike as soon as this month rose 3.2 percentage points to 30.5 percent by Monday's close, while the amount of hikes priced by December increased 4.8 basis points to 42.2 basis points.

European markets felt the pressure as well. The ECB repriced more aggressively, with the amount of hikes priced by December rising 12.7 basis points on the day to 39.5 basis points, according to Deutsche Bank. The euro area already hiked in June, and the new pricing implies a growing chance of three moves by year-end.

The dollar strengthened broadly, firming to 162.05 yen, while the pound eased to $1.3381 ahead of a pivotal week in UK politics. European equity futures fell about 0.6 percent, and the Nikkei led Asian markets lower. Nasdaq futures lost 0.6 percent as investors weighed whether the geopolitical shock would dent demand for AI-related stocks just as earnings season begins.

What Comes Next

The key question for markets is duration. If the 20 percent fee is a short-term negotiating tactic, the inflation impulse may be contained. If it persists, the pass-through to consumer prices could force the Bank of England, the ECB, and the Federal Reserve to delay or reverse planned rate cuts. The BoE faces its next decision on Aug. 6, with markets now pricing a higher probability of a hold or even a hike.

The last time a major trading chokepoint was weaponized — Turkey's 2022 closure of the Bosphorus to Russian grain — global wheat prices rose 25 percent in two weeks, and emerging-market central banks from Poland to Egypt raised rates in response. The Strait of Hormuz carries far more economic weight: about 17 million barrels of oil and liquefied natural gas pass through daily, equivalent to roughly one-fifth of global seaborne trade.

This article is for informational purposes only and does not constitute investment advice.