Euro zone bonds steady as traders weigh inflation hit from Iran war

LONDON, March 31 (Reuters) - Euro zone government bond yields were little changed on Tuesday after falling the previous day, as traders weighed the chances of an end to the Iran war and awaited data expected to show a sharp rise in inflation in March due to higher energy costs.

Yields had retreated from multi-year highs on Monday after rising sharply this month because of the conflict, with investors appearing to refocus on the risk of weaker growth stemming from the energy shock.

Germany's 10-year yield DE10YT=RR, the euro zone benchmark, was last down 1 basis point at 3.031%. Yields move inversely to prices.

The yield fell 6 bps on Monday after hitting its highest since 2011 on Friday at 3.13%. It was still on track on Tuesday to rise 39 bps in March, the biggest monthly increase since late 2022.

Investors continued to assess developments in the month-old war, with oil prices holding above $110 a barrel after Iran attacked and set ablaze a fully loaded crude oil tanker off Dubai.

The Wall Street Journal reported that U.S. President Donald Trump had told aides he was willing to end the military campaign even if the key Strait of Hormuz remains largely closed. The report boosted equities, but bonds showed little reaction.

Euro zone inflation data due at 1100 CET (0900 GMT) is expected to show a jump to 2.6% in March from 1.9% in February as energy prices surged.

Germany's two-year yield DE2YT=RR, which is sensitive to European Central Bank interest rate expectations, was last flat at 2.623%.

The yield has risen 61 bps in March as traders have bet the ECB will need to hike rates to tame inflation, putting it on track for its biggest monthly rise since mid-2022.