Euro zone bond yields fall on subdued oil prices, soft US inflation data

Germany's 10-year bond yield, the benchmark for the euro zone, was last down 2 basis points (bps) at 3.157%.

U.S. inflation came in at 3.4% on a year-over-year basis in July, official data showed, down from 3.5% a month earlier and in line with economists' expectations.

U.S. Treasury yields fell slightly after the data, which also showed core inflation — which strips out volatile food and energy prices — cooled slightly on a year-over-year basis last month.

Germany's 2-year bond yield was last down 1 bp at 2.774%.

Investors and analysts said the U.S. central bank's Federal Open Market Committee will want to look closely at August's inflation reading before it makes its next interest rate decision in September.

"With another round of inflation data due before the September FOMC meeting, it remains all to play for, but today's in-line report was a good start," said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management.

Traders slightly trimmed their bets on further rate hikes this year from the European Central Bank. Money markets last pointed to 39 basis points of further monetary tightening, down around 1 bp from earlier in the session.

The size of the U.S. economy and its financial markets means its economic data is closely watched around the world and can influence expectations about other central banks' monetary policy.

LONDON, Aug. 12 (Reuters) - Euro zone government bond yields fell on Wednesday as oil prices held steady and data showed U.S. inflation cooled slightly on a year-over-year basis last month.