July 14 (Reuters) - Germany's policy-sensitive two-year bond

yield hit its highest since July 2024 on Tuesday as the Middle

East conflict stoked fears that higher energy prices could boost

inflation and interest rates.

The U.S. military carried out a third consecutive night of

strikes against Iran on Monday as President Donald Trump

reinstated a blockade of Iranian shipping and proposed charging

a 20% fee to guard the Strait of Hormuz.

Germany's 2-year yields, more sensitive to

expectations for policy rates, rose 8 basis points to 2.798%,

their highest since July 2024.

Money markets indicated the ECB deposit rate at 2.70% in

December, from the current 2.25%. They also

fully priced a rate hike in September.

Germany's 10-year government bond yield, the

euro area's benchmark, was up 4 bps at 3.11%. It reached 3.20%

in mid-May, its highest level since May 2011.

Oil prices rose nearly 3% on Tuesday to their highest in

four weeks, as the U.S. reimposed its naval blockade of Iran,

heightening uncertainty about energy flows.

Investors will watch Federal Reserve Chair Kevin Warsh's

testimony before the House Financial Services Committee and U.S.

inflation data later in the session.

The U.S. central bank may need to raise interest rates "in

the near term" if coming data show inflation continuing well

above the 2% target, Fed Governor Christopher Waller said on

Monday.

Italy's 10-year government bond yields rose 7.5

bps to 3.94%.

The yield gap of Italian government bonds versus bunds

was at 80 bps. It was at 63 bps before the attack

on Iran and hit 103.62 in late March, the highest level since

June 2025.