LONDON, June 16 (Reuters) - Euro zone government bond yields

steadied on Tuesday after touching a more than two-week low the

day before, following a preliminary agreement between the U.S.

and Iran to end their war and reopen the Strait of Hormuz.

The agreement to reopen the vital waterway, which saw

one-fifth of the world's oil and gas flow through it before the

war, should ease pressure on energy supplies, which pushed

front-month Brent crude futures to their lowest level

since March 10.

Lower energy prices have dampened worries about higher

inflation and slowing growth, and helped reduce expectations for

further policy tightening from major central banks, including

the European Central Bank.

Germany's 10-year Bund yield, the benchmark for

the euro zone, was little changed at 2.954%. It fell 5 bps on

Monday to 2.9443%, its lowest since May 29.

Germany's two-year yield, which is sensitive to

changes in ECB rate expectations, was up 0.5 bps at 2.577% after

falling to a two-week low of 2.547% on Monday.

ECB HIKE EXPECTATIONS TRIMMED

Last week, the ECB was the first major central bank to tighten

policy since the outbreak of the war, followed by a Bank of

Japan rate hike earlier on Tuesday.

Investors, however, have trimmed their expectations for

further hikes from the ECB following the peace agreement, even

if details of the deal are light. Money market futures are fully

pricing in 32 bps of tightening by the end of the year, implying

one quarter-point hike and around a 30% chance of another.

"Our view remains that a deal implies that ... the ECB

should be done with its rate hiking cycle," Jefferies economist

Mohit Kumar said.

ECB President Christine Lagarde on Monday welcomed news of the

peace agreement, but other policymakers, including Germany's

Joachim Nagel, said there would be no immediate relief on

inflation because it would take months to restore oil supply to

its pre-war level.

ECB chief economist Philip Lane is scheduled to participate

in a Reuters NEXT event later on Tuesday, which could provide

further clues on the outlook for monetary policy.