(Updates latest price moves, updates news developments, adds

analyst comment)

By Stefano Rebaudo and Lucy Raitano

June 8 (Reuters) - Euro zone government bond yields rose to

multi-week highs on Monday, in a choppy session, as traders

reacted to developments in the Middle East.

Iran and Israel said on Monday they had halted attacks on

each other, following an appeal from U.S. President Donald

Trump, though Tehran said it would resume strikes if Israel

continued to hit Hezbollah in Lebanon.

Euro zone yields began the day in positive territory, before

dipping in early afternoon trading after Iran announced the end

of its military operations against Israel. They rose again

towards the end of the European session. The price of oil was

1.5% higher on the day.

Germany's 10-year government bond yield, the

euro area's benchmark, rose 2 bps to 3.06%, after earlier

hitting 3.072%, the highest since May 22. It reached 3.13% in

late March, its highest level since June 2011.

Kenneth Broux, head of corporate research FX and rates at

Societe Generale, said the price of oil, as well as heavy German

bond supply looming this week and positioning ahead of U.S. CPI

on Wednesday, were supporting euro zone yields.

Investors remain cautious about the possibility of a swift

reopening of the Strait of Hormuz, which would ease energy

supply constraints, lowering inflation pressures while reducing

expectations of further monetary tightening and pulling bond

yields lower.

"With renewed clashes in the Middle East and higher oil

prices, 10-year Bund yields are unlikely to fall below the 3%

mark for the time being," Rainer Guntermann, rate strategist at

Commerzbank, said.

Germany's 2-year yields, more sensitive to

expectations for policy rates, were last up 1 basis point to

2.7%. Earlier they hit 2.734%, the highest since May 20. They

reached 2.771% in late March, the highest since July 2024.

Investors are bracing for a European Central Bank policy

meeting later this week, where a 25-bp rate increase is widely

anticipated.

Money markets are pricing the ECB deposit rate at around

2.69% by December, from the current 2%.

They also priced in a more than 90% chance of a first rate rise

this month, followed by a second in September.

"The data currently available is indeed insufficient to

assess the magnitude or persistence of the shock from the Middle

East conflict, while higher input costs are not being fully

passed through to final prices and demand pressure remains

weak," Alessia Berardi, head of global macroeconomics at the

Amundi Investment Institute, said.

"Our projections currently rule out a return to lower rates

in 2027 following the mild hikes we expect for 2026, as we see

the core consumer price index remaining around 2.5%," she added.

Italy's 10-year government bond yield was 3 bps

higher at 3.84%. The yield gap of Italian government bonds

versus bunds was at 76.21 bps. It was at 63 bps on

February 27 just before the outbreak of the Iran war and hit

103.62 in late March, the highest level since June 2025.