Euro zone bond yields nudge up following Fed decision

By Linda Pasquini

June 19 (Reuters) - Euro zone yields were slightly higher on Thursday after the U.S. Federal Reserve held rates steady the day before, with investors still nervously watching developments in the Middle East.

The U.S. central bank kept interest rates unchanged as widely expected on Wednesday, with Chair Jerome Powell saying he expected to see more tariff-driven price hikes in coming months.

Meanwhile, financial markets were on edge over the possible entry of the United States into the week-old Israel-Iran air war, ahead of central bank policy decisions in Switzerland, Norway and the UK later in the day.

Germany's 10-year bond yield was up 2.4 basis points on the day at 2.52%, retracing some of the previous day's fall, but still trading within its recent range.

The yield on the two-year Schatz was up 1 bp at 1.856%.

The Swiss central bank is expected to cut its policy rate to zero from 0.25% on Thursday, but with a strong chance rates return to negative territory at some point this year.

Markets anticipate the Norges Bank and the Bank of England will leave their respective rates unchanged, and investor focus will be on their policy outlooks for the rest of the year.

Italy's 10-year bond yield, the benchmark for the euro zone periphery, was 4 bps higher at 3.526%., leaving the gap between Italian and German yields wider at 99.50. (Reporting by Linda Pasquini; Editing by Amanda Cooper and Emelia Sithole-Matarise)