LONDON, April 15 (Reuters) - Euro zone bond yields

retreated for the second day in a row on Wednesday as hopes grew

that U.S.-Iran peace talks would resume and the Middle East

conflict would be resolved.

U.S. President Donald Trump said negotiations between U.S.

and Iranian officials could resume in Pakistan in the next two

days and Vice President JD Vance, who led weekend talks that

ended without a breakthrough, said he felt positive about where

things stood.

However, more vessels were being turned back under the U.S.

blockade of Iran's ports.

Germany's 10-year government bond yield, the

benchmark for the euro zone, was recently 2 basis points lower

at 3.0097%, extending its decline from the previous session. In

late March it hit 3.13%, its highest level since 2011.

Bonds have been under pressure throughout much of the

conflict that sent energy prices higher, sparking inflation

concerns and prompting markets to sharply adjust their central

bank interest rate expectations.

European Central Bank President Christine Lagarde on Tuesday

said the central bank was not yet in a position to determine if

the current oil-price-driven inflation shock is transitory or if

it requires the bank to raise interest rates.

Separately, she said the euro zone economy was somewhere

between the "baseline" and "adverse" scenarios the central bank

laid out last month. The adverse scenario envisages inflation

rising to 3.5% in 2026.

Euro zone inflation jumped to 2.5% in March from 1.9% a

month earlier as higher oil and gas costs drove up prices,

according to flash data.

Money markets were last pricing in at least two interest

rate hikes from the ECB in 2026, with a small chance of a third.

Chances of a rate hike at the central bank's next meeting in

April have meanwhile eased and were last at around 20%, down

from 50% on Monday.

The yield on the German 2-year government bond,

which is more sensitive to policy rate expectations, was last

down 2.3 bps to 2.523%. It fell more than 9 bps in the previous

session.

(Reportin by Sophie Kiderlin; Editing by Thomas Derpinghaus)