By Stefano Rebaudo

June 1 (Reuters) - Euro area government bond yields rose on Monday as investors stayed wary of a potential U.S.–Iran deal to reopen the Strait of Hormuz, a development that could ease inflation pressures and reduce expectations for European Central Bank tightening.

Borrowing costs tracked moves in oil prices, which were up 1.5% on Monday but below $95 and seen as a proxy for future inflation.

The U.S. said it struck Iranian military sites at the weekend and Iran's Revolutionary Guards said on Monday it had targeted a U.S. base in response, but President Donald Trump reiterated that Iran really wanted to make a deal.

Money markets are pricing the ECB deposit facility rate at 2.58% by December EURESTECBM5X6=ICAP, up from the current 2% but slightly down from the 2.53% level seen last Friday. They also indicated an about 80% chance of a first hike this month. EURESTECBM1X2=ICAP

Germany’s 2-year yields DE2YT=RR, more sensitive to expectations for policy rates, rose 3 basis points (bps) to 2.56%. They reached 2.771% in late March, the highest since July 2024.

Germany’s 10-year government bond yield DE10YT=RR, the euro area’s benchmark, was up 4 bps at 2.97%. It reached 3.13% in late March, its highest level since June 2011.

Italy’s 10-year government bond yields IT10YT=RR rose 3.5 bps to 3.70%.

The yield gap of Italian government bonds versus bunds DE10IT10=RR stood at 70 bps. It was at 63 bps before the attack on Iran and hit 103.62 in late March, the highest level since June 2025.