Bund yields near 15-year highs as investors fear protracted Iran war

Refiles to clarify paragraph 4 is referring to German bond yields

Aug 17 (Reuters) - Euro zone benchmark government bond yields hovered around their highest levels in more than 15 years on Monday as the prospect of a prolonged conflict in the Middle East raised concerns that inflationary pressures may prove more persistent.

Germany's 10-year Bund yield was steady at 3.20%. It reached 3.2118% in late July, its highest since May 2011.

Iran called on the United States to accept defeat on Saturday, while President Donald Trump blasted Tehran as "very evil" and told Americans to prepare for continued high fuel prices as a result of the war.

Germany's two-year bond yields, which are more sensitive to interest rate expectations, were roughly unchanged at 2.79%.

Money markets priced in a European Central Bank deposit rate of 2.76% in March 2027 EURESTECBM5X6=ICAP from the current 2.25%. They also implied a more than 90% chance of a September rate hike.

"We see it as a maximum one hike from the ECB," Mohit Kumar, an economist at Jefferies, said.

"Oil prices are currently lower than any of the adverse scenarios that the ECB presented in June and there is no need to deliver a series of hikes," he added.

The yield gap between 10-year Italian government bonds and Bunds <DE10IT10=RR> was at 77 bps. It was at 63 bps in February before the attack on Iran and hit 103.62 in late March, the widest since June 2025.

(reporting by Stefano Rebaudo; editing by Kirsten Donovan)

((stefano.rebaudo@tr.com))