Euro zone bond yields rise with central banks, US-Iran deal in focus

* Euro zone bond yields nudge higher

* Traders weigh hawkish shift from Fed

* Markets pricing in one more ECB rate hike this year (Updates throughout)

By Sophie Kiderlin

LONDON, June 18 (Reuters) - Euro zone bond yields picked up on Thursday as traders weighed a hawkish shift from the Federal Reserve in a busy week for global central banks, while the U.S. and Iran said they signed a deal that would reopen the Strait of Hormuz.

Yet some tensions appeared to remain, even as the U.S. and Iran released an interim agreement to end the war, with President Donald Trump threatening to resume attacks and kill Iranian officials if they failed to honour their commitments.

Brent crude futures were last down around 1.2% at $78.57 a barrel, trading around early-March levels.

The yield on the German 10-year bond, the benchmark for the euro zone, rose roughly one basis point to 2.9359% after declining for five consecutive days. That price rally - yields move inversely to prices - was the longest since mid-February and came as optimism about the Iran war ending grew.

The conflict has seen government bonds come under pressure, with yields jumping as the outlook for inflation and interest rates shifted due to the war-related oil price shock.

The German 10-year bond yield is still close to 30 basis points above its pre-war levels.

EYES ON CENTRAL BANKS' REACTIONS TO IRAN WAR

Another driving force for markets this week has been central bank interest rate decisions, especially the eagerly anticipated debut meeting for new Federal Reserve Chairman Kevin Warsh.

As expected, the Fed held interest rates steady on Wednesday. But new quarterly projections showed that nine policymakers now see a hike in rates by the end of 2026. And an updated policy statement removed language that had been used to flag the likelihood of further reductions in borrowing costs this year.

Short-term U.S. Treasury yields rose sharply on Wednesday as expectations for tighter Fed policy grew.

Warsh was appointed by Trump earlier this year with an expectation that he would deliver the rate cuts the president has called for. And markets have been eager to see how the new Fed chair would approach policy-making.

"Aside from the (unanimous) decision itself, Warsh already left some marks," said Erik Liem, rates strategist at Commerzbank.

"The monetary policy statement is much more streamlined and concise," he noted, adding that the Fed would restrict its communication to key information.

Liem also pointed out that Warsh does not seem to think forward guidance is a good tool.

Attention on Thursday was also on central banks elsewhere, with the Swiss National Bank and Bank of England both leaving rates unchanged.

Their decisions come after the European Central Bank last week raised rates, with the Bank of Japan following suit earlier this week.

Markets have been paying close attention to comments from policymakers as they have tried to assess what impact the Iran war might have on the economy, with worries about rising inflation, higher rates and weaker economic growth taking hold.

Money markets were last pricing in at least one more rate hike from the ECB this year, with a chance of a second.

The yield on the German 2-year bond, which is more sensitive to rate and inflation expectations, was last up 4.6 basis points to 2.6296%. (Reporting by Sophie Kiderlin; Editing by Thomas Derpinghaus and Joe Bavier)