Euro zone bond yields hold steady as Strait of Hormuz impasse continues

Despite the lack of progress on talks, oil prices have risen relatively modestly and are up 5% for the week after falling the previous two weeks, limiting inflationary pressures.

Oil fell 2% on Thursday, after U.S. oil inventories rose and two major energy organisations lowered their demand forecasts, although Brent crude rose 1% on Friday to $87.90 a barrel LCOc1.

Germany's 2-year bond yield DE2YT=RR, which is sensitive to European Central Bank rate expectations, was little changed at 2.764% and was set to end the week 3 bps higher.

Traders in money markets were last pricing in around 39 bps of further ECB monetary tightening this year, up about 1 bp from the start of the week.

"We see more chances for rate hikes to be priced out and Bund yields to test the lower bound of their range," said Christoph Rieger, head of rates at Commerzbank.

He pointed to subdued U.S. inflation data, which has an impact on expectations for the euro zone economy, and said Friday's U.S. retail sales figures could help cool bond markets if they come in below expectations.

The United States on Thursday said that it could maintain a naval blockade of Iran indefinitely amid floundering ceasefire talks.

U.S. President Donald Trump has repeatedly asserted that the U.S. has "total control" over the strait, prompting Iranian counterclaims that the waterway is under Tehran's management.

Tehran has said it will not allow the strait to reopen until its conditions are met. These include removing economic sanctions and releasing frozen Iranian assets.