Euro zone yields fall sharply on hopes war could end soon

LONDON, April 1 (Reuters) - Euro zone bond yields dropped sharply on Wednesday after U.S. President Donald Trump said the end of the war on Iran could be near, a development that would ease traders' fears about high energy prices driving inflation and interest rate hikes.

Germany's 10-year yield, the benchmark for the euro zone, fell 7 basis points in early trading to 2.93%, its lowest in two weeks. DE10YT=RR

Italy's 10-year yield dropped more, down 15 bps to 3.76%. Italian debt has underperformed in recent weeks on the view the country is more exposed to higher energy prices. IT10YT=RR

"We'll be leaving very soon," Trump told reporters at the White House on Tuesday, saying the exit could take place "within two weeks, maybe two weeks, maybe three."

The remarks underscored the shifting and at times contradictory timelines and statements from Washington about how and when the war, now in its fifth week, might end.

Markets also slightly eased their bets on the amount of European Central Bank rate hikes they expect. Sixty basis points of hikes are now priced by December, indicating two 25-bp hikes and some chance of a third.

Earlier in the week, markets expected three ECB rate hikes this year. Before the war, they expected it to stay on hold for 2026, with a chance of further easing.