Euro zone bond yields drop as oil prices fall on Iran talk hopes

LONDON, Aug. 3 (Reuters) - Euro zone bond yields fell on Monday as oil prices dropped after U.S. President Donald Trump said talks with Iran were imminent, reviving hopes of a deal to reopen the Strait of Hormuz energy shipping route.

However, Iran's foreign ministry spokesperson said on Monday no negotiations were taking place with the U.S. or were planned, although talks were happening with Oman.

Germany's 10-year bond yield, the benchmark for the bloc, fell 6 basis points to 3.142%, after rising to close to its highest in 15 years on Friday. Yields move inversely to prices.

Trump told reporters on Sunday that a negotiation would begin on Monday afternoon, but did not say who would be involved or where the talks would be.

Strategists sounded a note of caution on Monday.

"We do not think that we will get an all-out war, but we see the uneasy truce scenario dragging on for a while, with violations from Iran and sporadic attacks on ships," said Mohit Kumar, a senior European economist at Jefferies.

"Hence, we will look for some risk premium to be priced into the oil and by extension other markets."

Oil prices fell on Trump's comments, with Brent crude down 5% at $83.40 a barrel on Monday.

Germany's two-year bond yield, which is sensitive to European Central Bank rate expectations, fell 6 bps to 2.754% as expectations of lower inflationary pressures caused traders to nudge down their bets on further rate hikes.

The yield rose almost 30 bps in July as traders moved to price in more ECB rate hikes after the U.S. and Iran resumed strikes, pushing oil prices higher.

Money markets were last pricing in 40 bps of further ECB monetary tightening, down from 44 bps late on Friday.