Euro zone bond yields rise with oil prices on Iran strikes

LONDON, May 28 (Reuters) - Euro ​zone ⁠bond yields rose on Thursday after the ​U.S. and Iran traded strikes, threatening their ceasefire agreement and pushing oil prices up ​around ‌2%.

Germany's 10-year bond yield, the benchmark for the bloc, rose 1 basis point to ⁠2.994%.

The two-year German bond yield, which is ⁠more sensitive to European Central Bank ​interest rate expectations, rose 2 bps to 2.597%. Yields move inversely to prices.

The U.S. carried out what a Washington official said were strikes on an Iranian ​drone operation ‌near the Strait of Hormuz, after President Donald Trump rejected a report he was close to a compromise deal with Tehran.

In response, Iran's Revolutionary Guardsstruck a U.S. airbase on Thursday.

"Markets remain wary in the face of headlines ​from Iran as renewed strikes overnight render an imminent deal less likely," said Rainer ‌Guntermann, rates strategist at Commerzbank.

"Negative headlines leave markets in limbo, preventing sustained relief dynamics."

Brent crude oil rose 1.7% ‌to $95.90 a barrel.

Money markets increased their bets on rate hikes and were last pricing in around 62 bps of tightening from the ECB this year, up ​from just under 60 bps late on Wednesday.

Euro zone bond yields surged earlier this ‌month as traders bet the ECB would have to carry out as much as 75 bps of hikes - three full increases - to tackle inflation stemming from ⁠the Iran ⁠war.

Germany's 10-year bond yield rose to 3.2% on ‌May 19, its highest since 2011.

Yet signs of tentative progress on peace talks and weak economic data ​have since ​pulled yields lower along with oil prices.

Survey data last week ‌showed euro zone economic activity shrank at its sharpest rate in more than two-and-a-half years in May as businesses and consumers grappled with rising energy costs. (Reporting by Harry Robertson Editing by Shri Navaratnam, Elaine Hardcastle)