Euro zone bond yields fall slightly on lower oil, US inflation relief

Noel Dixon, senior macro strategist at State Street, said the components of Thursday's report that feed into the personal consumption expenditures data due later this month suggest that the report "should be pretty good."

"My takeaway from that number and yesterday's number is that it helps to make the case for the Fed staying on hold in September," Dixon said.

Investors are still watching discussions between Washington, Tehran and mediators on any end to the Iran war and the potential reopening of the Strait of Hormuz, although a deal appears to be out of reach with attacks on ships occurring this week and both sides stepping up their rhetoric.

The stalemate is keeping oil prices elevated, although well below their highs in May.

On Thursday, Brent was down about 2% to $87.20 per barrel, although that was still up about 45% from its pre-war level.

Economists and investors polled by Reuters expect the European Central Bank to raise interest rates once more next month, as high energy prices push inflation further from the bank's 2% target.

Markets are pricing in around a 90% chance of a quarter-point rate hike at next month's ECB meeting.

Germany's two-year yield, which is sensitive to changes in interest rate expectations, was down about 1 basis point at 2.759%.

Euro zone bond yields declined on Thursday as oil prices retreated and the latest round of U.S. inflation data further cooled expectations for a rate hike from the Federal Reserve next month.

Germany's 10-year yield, the benchmark for the euro zone, was down 2.6 basis points at 3.13% after data showed the U.S. producer price index was unchanged in July. It followed Wednesday's benign U.S. consumer price inflation data.