(Updates prices, adds analyst comment)
LONDON, June 15 (Reuters) - Euro zone bond yields fell on
Monday after the U.S. and Iran reached a preliminary deal to end
their war and reopen the key Strait of Hormuz, driving oil
prices sharply lower.
Germany's 10-year bond yield, the benchmark for
the euro zone, fell to 2.945% - its lowest since late May - and
was last down 4 basis points (bps) at 2.958%.
The German two-year yield, which is sensitive to
European Central Bank interest rate expectations, fell to a
two-week trough of 2.547% and was last 5 bps lower at 2.565%.
U.S. and Iranian officials said they reached an agreement
to end the war in a preliminary pact that will lift the U.S.
blockade of Iran and open the Strait of Hormuz, through which
20% of global energy normally flows.
Oil prices fell sharply, reducing the pressure on central
banks to raise interest rates to tame inflation and helping bond
yields fall around the world.
"As Trump said that the Strait of Hormuz will be reopened on
Friday after the deal is signed, broad-based relief across
markets seems justified," said Hauke Siemssen, rates strategist
at Commerzbank.
"However, key questions about the agreement remain
unanswered as no text has been made available yet."
Kazem Gharibabadi, Iran's deputy foreign minister, said a
more extensive agreement on the wider conflict would be
negotiated during a 60-day ceasefire period.
Brent crude oil, the global benchmark, was down 5%
at $82.90, hovering around its lowest point since early March.
Money markets were pricing in around 30 bps of additional
monetary tightening from the ECB this year, down from more than
40 bps after the central bank raised interest rates last
Thursday.
"Details of the deal are not yet clear," said Mohit Kumar,
chief European economist at Jefferies, including whether the
passage through the strait would be free as well as the timeline
over which sanctions would be lifted on Iran.
"But what the market cares is whether the Strait of Hormuz
will be open and oil can start moving towards pre-war levels."
Italy's 10-year bond yield fell 5 bps to 3.682%,
hovering around a two-week low.