LONDON, June 26 (Reuters) - Euro zone bond yields edged down

on Friday, keeping them on track for their biggest weekly fall

in more than a year, as oil prices sank to their lowest levels

since the Iran war started, easing inflation worries.

Germany's 10-year bond yield fell 1.5 basis

points at 2.844%, the lowest since mid-March.

The benchmark yield has fallen around 14 bps this week, the

biggest weekly drop since March 2025, as oil prices fell sharply

following the resumption of shipping through the Strait of

Hormuz.

Brent crude oil was last down 1.9% at $73.90 a

barrel after spiking overnight when a vessel reported an attack

in the Strait, through which 20% of global oil and gas typically

flows. Two U.S. officials told Reuters Iran had fired on the

ship.

The incident highlights the fragility of the U.S. and Iran's

deal to end the war, which has set up 60 days of talks on

difficult issues such as Tehran's nuclear programme.

Nonetheless, the resumption of shipping through the strait

has tempered the inflation concerns, leading markets to reduce

bets on central bank rate hikes and pulling bond yields lower.

"Oil prices have shown only a muted reaction to news of

ships in the Strait of Hormuz being fired at," analysts at ING

said in a research note.

"Levels below $76 a barrel still look relatively benign, and

calls from the ECB's hawks for further action are starting to

ring hollow with market participants."

European Central Bank governing council member Isabel

Schnabel on Thursday said the ECB will need to keep raising

interest rates, after its hike earlier in June.

Germany's 2-year bond yield, which is sensitive

to rate expectations, was last down 1.5 bps at 2.524%, around

its lowest since late May.

Traders in money markets were expecting 26 bps of further

ECB tightening on Friday, meaning another hike was still fully

priced in, although that was down from 37 bps on Monday.

Closely watched U.S. economic data on Thursday helped pull

global bond yields lower, with month-on-month PCE inflation

coming in a touch lower than expected and consumer spending

figures revised sharply lower.