April 22 (Reuters) - Euro zone government bond yields

edged up on Monday as fears of an immediate military escalation

in the Middle East receded and investors shifted their focus to

inflation risks and the European Central Bank's monetary policy

path.

Tehran said last week it had no plans for retaliation

against an Israeli attack in a response that appeared gauged

towards averting regional war.

German 10-year bond yields, the benchmark for

the euro zone, were up 1.5 basis points (bps) at 2.51% after

hitting 2.523%, their highest since late November.

Money markets discounted 72 basis points of ECB monetary

easing in 2024, which implies two 25 bps

rate cuts and an 88% chance of a third move by year-end.

The gap between Bund yields and 10-year U.S. yields

-- a gauge of the monetary policy divergence

between the U.S. and the euro zone - was at 213 bps. It hit last

week 220.9 bps, its highest level since November 2019.

Germany's 2-year government bond yield, more

sensitive to changes in policy rates, was up at 3.01%.

Italy's 10-year government bond yield, the

benchmark for the euro area periphery, rose 0.5 bps to 3.91%.