Euro zone yields hover around multi-week highs amid persistent inflation fears

LONDON, April ​29 (Reuters) - Euro ⁠zone bond yields traded around multi-week highs on Wednesday ​as efforts to end the Iran war appeared to be in a stalemate and oil prices nudged higher again, prompting persistent inflation worries. German ​10-year ‌bond yields, the benchmark for the euro zone, were last 1.3 basis points higher at 3.0738%. They hit a two-week high of 3.0860% ⁠in the previous session. The rate-sensitive German 2-year bond yield meanwhile was ⁠4.4 bps higher at 2.6825%, trading around ​levels last seen on April 7. Bonds have come under renewed pressure in recent sessions, with yields steadily ticking higher, as efforts to end the war in the Middle East seem to be at an impasse. U.S. President Donald Trump on Wednesday ​urged Iran to 'get ‌smart soon' and sign a deal. Meanwhile, oil prices have been grinding higher as the crucial Strait of Hormuz remains effectively shut. Brent crude futures for June rose for the eighth day in a row on Wednesday and were last up around 2.8% at $114.4 a barrel. Higher energy prices have fed into inflation fears, which were underscored Tuesday by an ECB ​survey which showed inflation expectations for one year ahead had jumped to 4.0% in March from 2.5% a month earlier. ‌On Wednesday, data showed that euro zone economic sentiment plunged to a three-and-a-half-year low this month.

Preliminary inflation data for April due this week from across the euro zone will ‌provide insights into the economic impact of the war so far. In March, euro zone inflation jumped to 2.6%, and according to a Reuters poll of economists, the figure will likely have increased again in April. The euro zone-wide data ​will be published not long before the European Central Bank's latest interest rate decision on Thursday. Preliminary data out of Germany is meanwhile due Wednesday. ‌Earlier in the day, preliminary figures showed that inflation rose in three key German states in April, suggesting the national rate may have also increased.

While the ECB is broadly expected to leave interest rates unchanged this month, money markets were ⁠last pricing ⁠in roughly three rate hikes from the central bank by the end of ‌the year.

After Thursday's meeting, "we will wait until the next meeting in June. Obviously, the main factor will be how the war in Iran develops, how ​energy prices will develop. ​I think the ECB wants to collect more data. They will also have new forecasts ‌in June. If they want to hike, that would be the date," Felix Schmidt, senior economist at Berenberg, said.

Investors will also be watching closely for any comments from policymakers about the impact of the Iran war on the economy and monetary policy.