By Karen Brettell

NEW YORK, March 10 (Reuters) - U.S. Treasury yields fell Tuesday after President Trump said on Monday that the U.S.-Israeli war on Iran could soon be over, easing fears that a prolonged conflict would keep oil prices elevated and reignite inflation.

Oil prices plummeted 7% after soaring to a more than three-year high in the previous session. Trump's comments eased concerns about prolonged disruptions to oil supplies.

Trump on Monday threatened to escalate the war with Iran if it blocked oil shipments from the Middle East, even as he predicted a quick end to the conflict.

“A small change in sentiment about the direction of the war and energy prices is cascading down to the Treasury market,” said Will Compernolle, macro strategist at FHN Financial.

Yields have climbed over the past week as investors worry that rising oil prices could push inflation higher, prompting the Federal Reserve to delay cutting interest rates.

Fed funds futures traders are now pricing in 43 basis points of cuts by year-end, indicating doubts over whether the U.S. central bank will make a second 25-basis point cut this year.

The 2-year note US2YT=RR yield, which typically moves in step with Fed interest rate expectations, fell 3.1 basis points to 3.561%. The yield on benchmark U.S. 10-year notes US10YT=RR fell 1.1 basis points to 4.123%.

The yield curve between two- and 10-year notes US2US10=TWEB steepened by around half a basis point to 56 basis points.

Consumer price inflation data for February on Wednesday is one of this week’s main economic focuses. It is expected to show that core consumer prices rose by 0.2% during the month, while headline prices rose by 0.3%, according to the median estimate of economists polled by Reuters.

Investors will likely be more worried about an upside surprise, Compernolle said, in part because Personal Consumption Expenditures data on Friday is expected to show a higher increase.

Friday's PCE report for January is expected to show a 0.3% increase in headline inflation during the month, and a 0.4% increase in core prices.

Demand for Treasuries will be tested this week with $119 billion in coupon-bearing debt auctions. The Treasury will sell $58 billion in three-year notes on Tuesday, $39 billion in 10-year notes on Wednesday, and $22 billion in 30-year bonds on Thursday.