Euro area bond yields edge up after US attacks on Iran nuclear sites

By Stefano Rebaudo

June 23 (Reuters) - Euro zone government bond yields rose on Monday as investors worry about the potential inflationary impact of an escalation in the Middle East but wait to see if Iran will retaliate against U.S. attacks on its nuclear facilities.

U.S. President Donald Trump warned Tehran it would face more devastating attacks if it does not agree to peace.

Markets were also awaiting the release of the flash composite Purchasing Managers' Index for Germany and the euro area.

German 10-year government bond yields DE10YT=RR, which serve as the benchmark for the wider euro zone, rose 2 basis points (bps) to 2.53%.

The yield on benchmark U.S. 10-year notes US10YT=RR was up 2 bps at 4.40%.

Oil prices jumped to their highest since January.

Holger Schmieding, chief economist at Berenberg, said that a protracted disruption of oil and gas exports from the Gulf region "seems unlikely".

An Iranian closure of the Strait of Hormuz, the crucial conduit for around 20% of global oil and gas shipments, is the key economic risk for most market watchers.

"However, trying to throttle energy exports from the Gulf region would be a high-risk strategy for Tehran," Schmieding added, arguing that such a move would likely upset China and many other countries that do not usually side with the U.S.

Money markets priced in a European Central Bank deposit facility rate at 1.79% in December EURESTECBM4X5=ICAP compared to 1.77% late Friday.

The yield on two-year German government bonds – more sensitive to expectations for ECB policy rates - was up one bp at 1.87%. DE2YT=RR

Italy's 10-year yields IT10YT=RR rose 1.5 bps to 3.54%. The Italian yield gap versus Bunds DE10IT10=RR — a market gauge of the risk premium that investors demand to hold Italian debt — widened to 101 bps.