LONDON, June 25 (Reuters) - Euro zone bond yields traded at
around their lowest levels in more than three months on Thursday
after oil prices erased all their gains from the Iran war.
Germany's 10-year bond yield, the benchmark for
the bloc, was little changed at 2.872%, just above a 15-week low
of 2.859% hit the day before. Yields move inversely to prices.
Bond yields have fallen around the world along with oil prices
after the U.S. and Iran reached a preliminary deal earlier this
month to end their war and reopen the Strait of Hormuz, through
which 20% of global oil and gas typically flows.
Brent crude oil, the global benchmark, fell to $72 a
barrel on Thursday, the lowest since February 27, the day before
the U.S. and Israel launched strikes on Iran.
Months of higher oil prices, which peaked at $126 in late April,
drove up inflation in Europe and saw the European Central Bank
hike interest rates this month.
Money markets on Thursday showed traders are pricing in 29
basis points (bps) of further monetary tightening from the ECB
this year, down from around 37 bps a week ago.
Some ECB policymakers have flagged the potential need for
another rate hike to ensure the rise in energy costs does not
broaden into other sectors.
Germany's two-year bond yield, which is sensitive
to rate expectations, was last little changed at 2.564%. It has
stayed roughly flat this month as markets have continued to
price in another rate hike.
U.S. PCE inflation data, the Federal Reserve's preferred
measure, is due later in the day and is expected to have risen
to a more than three-year high of 4.1% in May, from 3.8% in
April.
Mohit Kumar, chief European economist at Jefferies, said the
drop in oil prices should mean central banks do not have to hike
interest rates.
"The rates market has been reluctant to price in the impact
of lower oil prices," he said.
"If oil stays at or below current levels, we do not see any
reason for the ECB to hike further."
(Reporting by Harry Robertson; Editing by Alexander Smith )