Benchmark JGB yields surge to two-month high as US-Israeli war stokes inflation fears

TOKYO, March 23 (Reuters) - Benchmark Japanese government bond yields climbed to a two-month high on Monday as renewed inflation fears, driven by the escalating U.S.-Israeli war with Iran, rattled markets.

The benchmark 10-year JGB yield JP10YTN=JBTC rose 5.5 basis points (bps) to 2.315%, the highest since January 21. Yields move inversely to bond prices.

"If the situation in Iran, particularly a blockade of the Strait of Hormuz, persists, there is a possibility that a rate hike will be implemented based on the risk that high oil prices and a weak yen could push up underlying inflation," Noriatsu Tanji, chief bond strategist at Mizuho Securities, said in a note.

The 20-year JGB yield JP20YTN=JBTC climbed 6 bps to 3.180%, the highest since February 5, while the five-year yield JP5YTN=JBTC rose 5 bps to 1.720%, also its highest in more than a month. The two-year yield JP2YTN=JBTC, which is the most sensitive to Bank of Japan policy rates, increased 2.5 bps to 1.29%.

Other tenors were yet to be traded as of 0046 GMT.

Iran said on Sunday it would strike the energy and water systems of its Gulf neighbours if U.S. President Donald Trump followed through with a threat to hit Iran's electricity grid in 48 hours, extinguishing any hope of an early end to the war, now in its fourth week.

Trump on Sunday said Iran had 48 hours to open the vital strait, which is effectively closed for most vessels.