LONDON, Aug 11 (Reuters) - Euro zone bond yields fell on

Tuesday, reversing an earlier rise, as oil prices edged lower

after Qatar's foreign ministry spokesperson said talks between

Oman and Iran on the future of shipping in the Strait of Hormuz

are in an advanced stage.

Meanwhile, disruption to Middle East energy flows continued,

with three crew members killed in a suspected attack by

Iran-backed Houthis on a small cargo vessel in the Bab el-Mandeb

strait.

Germany's 10-year bond yield was down 2 basis

points to 3.15%, after climbing 5 bps on Monday on the back of

rising oil prices. Yields rise as prices fall and vice versa.

U.S. President Donald Trump said on Monday Iran should pay

compensation for people killed in wars, attacks and protests, in

response to Tehran's own demands for compensation and an end to

sanctions.

Iran said earlier on Monday it was nearing a final pact with

Oman defining new shipping lanes through the Strait of Hormuz,

but repeated that the U.S. must meet conditions, including

compensation, before opening the key energy waterway.

Oil prices fell on Tuesday, with Brent crude down 2%

at $86.80 a barrel, after increasing 5% on Monday as the

prospect of a near-term Hormuz deal ebbed.

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

to European Central Bank rate expectations, fell 2 bps to 2.77%

after rising 5 bps on Monday.

"We are back to the situation where there is no war ongoing,

but the Strait of Hormuz remains closed," Mohit Kumar, a senior

European economist at Jefferies, said.

"The longer the strait is closed, the more inventories will

be depleted and the greater would be the impact on oil prices."

Traders in money markets were last pricing in a further 39

bps of ECB monetary tightening this year, up from 37 bps late on

Friday.

Italian and French 10-year bond yields

were both down 2 bps.

Longer-dated bond yields again came under pressure, with

France's 30-year yield hitting its highest since 2008 at 4.8004%

.

Analysts have said longer-dated yields are rising as

governments and AI companies borrow heavily in debt markets and

economic growth remains relatively resilient, with inflationary

fears from the Iran conflict also having an impact.

Bond markets were also waiting for Wednesday's U.S. CPI

inflation report, which will influence the Federal Reserve's

rate decisions and have knock-on effects for bond markets around

the world.