LONDON, April 20 (Reuters) - Euro zone bond yields rose

on Monday, as concerns grew that the ceasefire between the

United States and Iran might not hold, though borrowing costs

were still meaningfully below their late March highs hit before

the ceasefire was announced.

Germany's 10-year bond yield, the benchmark for the euro zone,

rose 3 basis points to 2.99%. Rate-sensitive two-year yields

rose nearly 5 bps to 2.47%.

Efforts to build a more lasting peace appeared to be on

shaky ground, as Iran said it would not participate in a second

round of negotiations that the U.S. had hoped to kick off before

the ceasefire expires on Tuesday.

In the short term, the U.S. said it had seized an Iranian

cargo ship that tried to run its blockade and Iran vowed to

retaliate.

That sent benchmark Brent crude futures up 6.6% on the day

to $95 a barrel, underscoring worries for bond

investors that sustained high energy costs could force central

banks to hike rates to prevent a broader surge in inflation.

Money markets see a small chance of a European Central Bank

rate hike later this month, but see a 25 bp hike as likely by

June and are close to fully pricing two such moves by year-end.

Before the war, markets thought the ECB would remain on hold

this year, but with a possibility of a rate cut. However, at

times in March they were pricing three 25-bp rate hikes, sending

Germany's two-year yield as high as 2.77%.

Italian bonds underperformed the German benchmark on Monday,

with its 10-year yield up 6 bps to 3.74% and its 2-year yield

nearly 5 bps higher to 2.66%.