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 )