Aug 10 (Reuters) - Euro zone government bond yields edged

higher on Monday as investors monitored prospects for the

reopening of the Strait of Hormuz and awaited U.S. inflation

data later this week.

Borrowing costs posted on Friday the biggest weekly fall since

June as hopes of an Iran peace deal and weak U.S. data tempered

market expectations for central banks' monetary tightening.

Investors remained cautious about the prospects for a Hormuz

deal after Iran reiterated that the United States must meet

additional conditions, including compensation and the lifting of

sanctions and military threats.

German 2-year bond yields, which are more

sensitive to interest rate expectations, rose 1.5 basis points

to 2.75%. They reached 2.8938% on July 23, their highest in more

than two years.

Germany's 10-year bond yield was up 0.5 bp at

3.14%. It hit 3.2118% in July, its highest since May 2011.

Money markets scaled back bets on the European Central Bank

deposit rate to 2.72% in March 2027 from

the current 2.25%.

The yield gap between 10-year Italian government bonds and

German Bunds was at 75 bps. It was at 63 bps in

February before the start of the Iran war and reached 103.62 in

late March, the widest since June 2025. The French spread

was at 77 bps.