TREASURIES-U.S. yields hit highest since July as Trump extends Hormuz reopening deadline

LONDON, March 27 (Reuters) - Yields on benchmark 10-year U.S. Treasuries rose to their highest level since July on Friday as markets grappled with the fallout of the Iran war, after U.S. President Donald Trump's extension of a key deadline failed to soothe energy prices.

The yield on 10-year Treasury notes US10YT=RR rose to 4.464%, up 4 basis points, after jumping 9 bps the previous day. Yields rise as prices fall and vice versa.

Bonds have been hammered as a spike in energy prices has caused traders to abruptly scrub out their bets on Federal Reserve rate cuts this year.

Money markets were last pricing in about a 75% chance of the Fed raising rates in 2026, according to LSEG data, a dramatic reversal from before the war in late February when two cuts were expected.

Trump said on Thursday he would again extend the deadline for Iran to reopen the Strait of Hormuz or face attacks on its energy plants, just after U.S. stocks closed out their biggest one-day fall since the war began.

Yet oil prices continued to rise on Friday as markets faced the reality that the Strait - through which 20% of global energy typically flows - remained closed and the war continued to rage.

"While the delay might reduce some of the immediate escalation risk, it offers no new visibility on the path towards resolution given Iran's denials over talks," said Jim Reid, global head of macro research and thematic strategy at Deutsche Bank.

A Wall Street Journal report that the Pentagon is looking at sending up to 10,000 additional ground troops to the Middle East added to concerns that the war could drag on or even intensify.

WTI crude oil CLc1, the U.S. benchmark, was last up around 2% at $96 a barrel. Global benchmark Brent crude LCOc1 was up a similar amount at $110 a barrel.

Two-year U.S. Treasury yields US2YT=RR, which are sensitive to Fed rate expectations, climbed 4 bps to 4.027%, the highest since June.

Thirty-year U.S. yields US30YT=RR rose by a similar amount to 4.976%, just shy of Monday's six-month high of 4.984%.