Germany's 10-year Bund yield erased early gains to trade just above 3.1% as crude prices retreated on signs of renewed diplomatic efforts between the US and Iran. Despite the pullback, the benchmark yield remained close to a two-month high, while the more policy-sensitive two-year Bund yield climbed above 2.8%, its highest level since July 2024. Brent crude touched its highest level in more than a month as escalating US-Iran hostilities threatened oil flows through the Strait of Hormuz, fueling inflation concerns and reinforcing expectations that the European Central Bank will deliver two more rate hikes by early 2027, with the first increase expected as soon as September. Attention now turns to Thursday's ECB policy meeting, where policymakers are widely expected to leave rates unchanged and adopt a wait-and-see stance following June's first rate hike in three years.