LONDON, March 11 (Reuters) - Euro zone government bond

yields wavered on Wednesday but traded well below the highs seen

earlier this week, as investors monitored volatile oil prices on

the 12th day of the U.S.-Israeli war on Iran.

Yields shot higher on Monday as oil prices surged to their

highest level in almost four years at close to $120 a barrel.

But they have since fallen, along with energy prices, on

hopes the war could be shorter than feared at the start of the

week and that countries could release strategic petroleum

reserves.

Germany's 10-year bond yield was last up 1 basis

point at 2.875%, down from Monday's one-year high of 2.931%.

Yields move inversely to prices.

The International Energy Agency has proposed the largest

release of oil reserves in its history to tame prices, the Wall

Street Journal reported on Tuesday, citing officials familiar

with the matter.

Brent crude oil, the global benchmark, was last up

1% at $88.50 a barrel - around 26% below Monday's high of

$119.50.

MIXED MESSAGING ON CONFLICT LENGTH

Oil prices dropped roughly 11% on Tuesday after U.S.

President Donald Trump told CBS News the war was "very

complete".

However, global markets are grappling with mixed messaging

from the Trump administration about the length of the conflict

and the reality that oil flows through the key Strait of Hormuz

have all but stopped.

"Markets are welcoming the thought of the Middle East

conflict ending soon, but oil prices tell us that we're not

there yet," said Michiel Tukker, senior European rates

strategist at ING.

ECB RATE HIKE NOW PRICED IN

Money markets on Wednesday were still pricing in an interest

rate hike from the European Central Bank this year, a sharp

change from the slight chance of a cut seen before the war.

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

to ECB rate expectations, was last up 1 bp at 2.281%. It hit its

highest since August 2024 on Monday at 2.476%.

Italian bond yields remained volatile, which analysts have

put down to the country's greater reliance on oil and natural

gas imports and its weaker public finances.

Italy's 10-year bond yield was last up 7 bps at

3.595%, although it remained well below Monday's 11-month high

of 3.785%.