Euro zone yields steady near multi-year highs

LONDON, May 19 (Reuters) - Euro zone bonds steadied on Tuesday, with yields just shy of multi-year highs hit the previous day when investors braced for a sustained period of high energy prices that could spill over into broader inflation and cause central bank rate hikes. Helping the mood on Tuesday was a social media post from U.S. President Donald Trump saying he had paused a planned attack against Iran after Tehran sent a peace proposal to Washington, and that there was now a "very good chance" of reaching a deal limiting Iran's nuclear program. Germany's 10-year yield, the benchmark for the euro zone, was down 1 basis point at 3.14%. It rose as high as 3.19% on Monday, its highest since 2011. Its rate-sensitive two-year yield dropped nearly 3 bps to 2.69% on Tuesday, as investors slightly pared back bets on the scale of European Central Bank tightening they expect. They still see around an 80% chance of a 25 basis point rate hike next month, however, and see two further such moves as likely by year end.

(Reporting by Alun John, editing by Gus Trompiz)