LONDON, May 29 (Reuters) - Euro zone bond yields slipped

on Friday as investors awaited more details on a potential deal

to reopen the Strait of Hormuz and extend the U.S.-Iran

ceasefire, while they assessed some mixed inflation figures in

the euro zone.

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

the bloc, was steady at 2.9587%.

The two-year German bond yield - more sensitive to

European Central Bank interest rate expectations - fell 1 basis

point to 2.5439%. Yields move inversely to prices.

Yields pared earlier losses after some softer-than-expected

inflation figures out of Germany for May. Hotter-than-expected

Spanish inflation data had earlier weighed on bonds, while in

France inflation came in below forecast but crept higher

month-on-month.

The United States and Iran reached an agreement on Thursday to

extend their ceasefire and lift restrictions on shipping through

the Strait of Hormuz, sources told Reuters, though U.S.

President Donald Trump has yet to approve it and Iranian state

media said it had not been finalised.

Oil steadied at $93.79 a barrel.

"In terms of market reactions if a deal is agreed upon, we

should see another leg higher in risky assets and lower in

rates. However, positioning suggests that the rates market

should see a greater reaction than equities," wrote Mohit Kumar,

chief European economist at Jefferies.

INFLATION JITTERS KEEP OPTIMISM IN CHECK

Kenneth Broux, head of corporate research for FX and rates

at Societe Generale, said euro zone bonds have been

underperforming U.S. recently.

"Europe as a whole is definitely underperforming the U.S.

after outperforming through May, I wonder how much of the lower

oil price and short-covering in Bunds is priced in. Support for

the 10-year Bund at 2.90% is a hurdle too far for now at least,"

he said.

With the Strait of Hormuz still largely closed and the

global flow of energy disrupted, fears of rising inflation in

the import-dependent euro zone had led traders to ramp up bets

on central bank rate hikes in recent weeks.

The worries subsided as optimism grew around a peace deal.

But key data reads are keeping inflation fears at the

forefront.

Friday's euro zone CPI figures come a day after figures showed

U.S. inflation increased at its fastest pace in three years in

April, cementing economists' views that the Federal Reserve

would hold interest rates unchanged well into ​next year.

Also out on Friday was data showing France's economy shrank

slightly in the first quarter, missing the preliminary reading

of 0.0% for the euro zone's second-largest economy.

European Central Bank research showed on Friday that euro zone

consumers, already scarred by the Ukraine war, have changed

their attitudes more quickly as a result of the upheaval of the

Iran war, meaning the economic hit could be deeper and faster.

Money markets are betting on a 91% chance of a rate hike at

the ECB's next meeting on June 11.

"For the ECB, we can see one hike (in June), simply because

they have to justify their inflation credibility. However, we do

not see a series of rates hikes and maintain our long position

at the front end of the curve," said Jefferies' Kumar.