Euro zone bond yields rise as oil prices climb amid Strait of Hormuz uncertainty

Euro zone bond yields rose slightly on Thursday after oil prices ticked up from the previous day's lows, on renewed doubts that an agreement to reopen the Strait of Hormuz could be reached in the near future.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the bloc, rose 3 basis points to 3.253%, remaining close to a 15-year high.

The 2- and 30-year yields DE2YT=RR, DE30YT=RR rose a similar amount to 2.848% and 3.759% respectively.

Qatar's prime minister will visit Tehran on Thursday to try to relaunch diplomacy between the U.S. and Iran, with both sides at odds over control of the Strait of Hormuz, through which 20% of the world's energy typically flows.

Iran's Revolutionary Guards said on Wednesday that Iran and Oman had agreed how to share the waterway and its revenues, but a senior Iranian source later said the two countries were still working on the details of an agreement.

HIGHER OIL PRICES ADD TO INFLATION RISK

Oil prices rose, with Brent crude LCOc1 up 0.6% at $88.40 a barrel, up from Wednesday's low of $85.40.

"Bunds are unable to hold their gains from previous sessions in the face of higher oil prices," said Erik Liem, rates strategist at Commerzbank.

Traders in money markets were last pricing in roughly 44 bps of further monetary tightening from the European Central Bank this year, little changed from Wednesday's close and broadly similar to pricing a week earlier.

Sources told Reuters on Wednesday that ECB policymakers are ready to raise interest rates at their next meeting in September to contain the economic impact of the Iran war, but they have little appetite to signal further tightening after that point.

Euro zone bond yields have risen to their highest levels in more than a decade in some cases over the last week and a half as investors have worried about inflation and government spending.

Germany's 10-year yield hit a 15-year high of 3.275% last week, while the 30-year yield also reached its highest level in 15 years at 3.787%.

France's 10-year yield FR10YT=RR was 3 bps higher at 4.107%, although remained below last week's 18-year high of 4.143%.

France faces a budget battle in the coming months as political parties jockey for position ahead of next year's presidential election, with investors anxious about public finances.

-Reporting by Harry Robertson; Editing by Alexandra Hudson and Barbara Lewis/Reuters