April 8 (Reuters) - Euro zone government bond yields

dropped sharply on Wednesday, after a deal for a two-week

ceasefire in Iran triggered a steep fall in energy prices and

prompted traders to dramatically scale back their bets on future

rate hikes from the European Central Bank.

Iran's foreign minister, Abbas Araqchi, said in a statement

Tehran would cease counter-attacks and provide safe passage

through the Strait of Hormuz, if attacks stop.

In March, concerns for a protracted conflict stoked

inflation fears, which prompted markets to price in a quick

response from the European Central Bank.

Germany's 10-year government bond yield dropped

18 basis points (bps) to 3.03% to 2.91%.

Money markets priced in a 20% chance of an ECB rate hike in

April from 60% on Tuesday and indicated a

deposit facility rate at 2.50% by year-end

from 2.75%. The depo rate is currently at 2%.