Euro zone yields at multi-week highs as traders price in three ECB hikes in 2026

June 8 (Reuters) - Euro zone government bond yields climbed to multi-week highs on Monday as traders came close to fully pricing in three European Central Bank rate hikes by year-end amid fading hopes for a swift reopening of the Strait of Hormuz.

U.S. President Donald Trump said on Sunday that new strikes by Israel and Iran would not affect his administration's peace talks with Tehran.

A reopening of the Strait of Hormuz would ease energy supply constraints, lowering inflation pressures while reducing expectations of monetary tightening and pulling bond yields lower.

Germany's two-year yields, more sensitive to expectations for policy rates, rose 3 basis points to 2.72%, their highest since May 20. They reached 2.771% in late March, the highest since July 2024.

Investors are also bracing for the European Central Bank policy meeting later this week, where a 25-basis-point rate increase is widely anticipated.

Money markets are pricing the ECB deposit rate at 2.73% by December, from the current 2%. They also indicate a more than 90% chance of a first rate rise this month, followed by a second in September.

Germany's 10-year government bond yield, the euro zone benchmark, was up 2.5 bps at 3.06%, its highest since May 22. It reached 3.20% on May 19, its highest since June 2011.

Italy's 10-year yields rose 4.5 bps to 3.85%, with the premium over German bunds at 76 bps. (Reporting by Stefano Rebaudo. Editing by Mark Potter)