Euro zone government bond yields were holding steady on Tuesday after Israel and Iran agreed to halt attacks on one another for now, calming fears that their weekend exchange of missile fire could derail efforts to reach a deal to end the Middle East conflict.
Investors were also awaiting the European Central Bank's policy announcement on Thursday, when the ECB is expected to become the first of the big central banks to raise rates since the U.S.-Israeli war against Iran unleashed an energy crisis and stoked inflationary pressures.
Iran and Israel said on Monday that they would end military operations following an appeal from U.S. President Donald Trump, as he attempts to reach a peace agreement that would get oil supplies flowing back through the Strait of Hormuz.
A reopening of the Strait could ease worries about energy supplies and reduce expectations for monetary tightening from major central banks.
Germany's 10-year yield , the benchmark for the euro zone, was last at 3.057%, little changed on the day.
"I don't think there will be a trend in the 10-year bund in the coming months," said Jussi Hiljanen, chief strategist at SEB, who said he expects the yield to be between 2.9% and 3.1% most of the time.
"I think it will go sideways with a lot of volatility."
ECB SET TO HIKE
Price pressures have started to rise across the bloc since the start of the war, although consumers kept their expectations for inflation steady in April, a survey showed earlier this month.
"Most of the Governing Council members are open-minded over what to do after June," SEB's Hiljanen said. "I think it will be a neutral message in relation to market expectations."
Money market futures are pricing in about 68 basis points of tightening by the end of the year, implying one further quarter-point hike and a more than 70% chance of a third.
Germany's 2-year bond yield , which is sensitive to changes in ECB rate expectations, was down 2 basis points at 2.683%, after hitting an almost three-week high of 2.734% on Monday.
