Bund yields on track for a weekly rise after fragile Iran ceasefire

April 10 (Reuters) - Euro zone benchmark Bund yields were on track for a weekly rise, despite their sharpest drop in years on Wednesday, as a ceasefire between the U.S. and Iran showed further strain.

Borrowing costs tracked oil prices, as their recent rise stoked inflation concerns and expectations of a swifter tightening response from the European Central Bank.

There was no sign Iran was lifting its near-total blockade of the Strait of Hormuz, which has caused the worst-ever disruption to global energy supplies.

Germany's 10-year government bond yield rose one basis point (bp) to 3.02% and was set for a 2.5-bp weekly rise. It reached 3.13% in late March, its highest level since June 2011.

Money markets priced in an ECB deposit facility rate at 2.58% by year-end, which implies two rate hikes and a 30% chance of a third tightening move. They had indicated three rate hikes before the ceasefire announcement earlier this week. The deposit facility rate is currently at 2%.

Germany's 2-year yields, more sensitive to expectations for policy rates, were flat at 2.45% and on track for a weekly drop of 8 bps.

Italy's 10-year government bond yields were down one bp at 3.78%. They reached 4.142% in late March, the highest since July 2024.

The yield gap of Italian government bonds versus Bunds was at 89 bps. It was at 63 bps before the attack against Iran and rose to 103 bps during the conflict. (reporting by Stefano Rebaudo; Editing by Toby Chopra)