(Updates with details, prices)

* US-Iran talks ongoing, US expects Iran to open Strait

of Hormuz, sources say

* Brent crude dips below $100, easing inflation fears and

ECB rate hike expectations

* ECB policymaker Boris Vujcic says energy prices align

with baseline, no change to outlook

By Stefano Rebaudo

April 14 (Reuters) - Euro zone benchmark government bond

yields edged lower on Tuesday, but remained close to 15-year

highs, as hopes grew for a resolution of the Middle East

conflict.

Sources familiar with the negotiations said talks between

the U.S. and Iran remained ongoing, while U.S. Vice President JD

Vance said on Monday the U.S. expects Iran to make progress on

opening the Strait of Hormuz.

The jump in oil prices has heightened concerns about a

pickup in inflation and supported expectations for European

Central Bank rate hikes. Brent crude futures, which have risen

40% since the start of the war, dipped below $100 a barrel on

Tuesday.

Germany's 10-year government bond yield fell 3.5

basis points (bps) to 3.05%. It reached 3.13% in late March, its

highest level since 2011. Two-year yields, which are

more sensitive to expectations for policy rates, were down 5 bps

at 2.59%. They reached 2.771% in late March, their highest since

July 2024.

Analysts said that while the truce was fragile, neither

party was likely to let full-blown war resume.

Attention is also turning to Beijing's reaction, as any

Iranian oil export blockade would be particularly problematic

for China, which imports much of its oil from Iran, and could

pile pressure on all sides for a quicker resolution.

Money markets priced in a ECB deposit facility rate at 2.62%

by year-end, implying two hikes and an

about 50% chance of a third move, from around 2.60% late Friday.

They also indicated a 30% chance of a rate increase in

April, down from 50% on Monday. The deposit facility rate is

currently at 2%.

Markets expect the ECB to lean towards tightening monetary

policy to ward off an energy shock, but policymaker Boris Vujcic

said on Monday current energy prices remain broadly in line with

the central bank's baseline scenario and should not affect the

inflation or growth outlook.

"Bond markets appear to be growing 'comfortably numb'," said

Christoph Rieger, head of rates and credit research at

Commerzbank, highlighting that European government bond and

credit spreads are all at levels from the first half of March,

when oil prices were a lot lower.

Italian 10-year bond yields fell 5 bps to 3.83%.

They reached 4.142% in late March, the highest since July 2024.

They are still up 55 bps since the start of the war, given

Italy's exposure to imported energy-price inflation.

The yield premium of Italian government bonds over German

Bunds was at 76 bps. It was at 63 bps before the attack against

Iran and hit 103.62 bps during the conflict, the highest since

June 20.