Eurozone government bond yields extended their decline on Wednesday as Brent crude fell more than 2.5% to about $86 a barrel, easing the cost-push inflation premium linked to Middle East supply risks. Germany’s two-year Schatz yield slipped to 2.781%, while the 10-year Bund yield fell to 3.195%, moving back below 3.20% after approaching 15-year highs the previous week. Reports that the U.S. and Iran were nearing an interim ceasefire deal, including guarantees for unhindered Strait of Hormuz transit, helped drive the oil selloff and lower inflation expectations. The move followed a decline reported on Tuesday and outweighed hawkish ECB guidance. ECB Executive Board member Isabel Schnabel said further tightening would be necessary because inflation was unlikely to return to target at the current policy rate, reinforcing expectations for a possible 25-basis-point rate increase in September. Her comments, along with ongoing Middle East risks and resilient Eurozone activity, limited the fall in short-dated yields. Investors are now turning to Federal Reserve Chair Kevin Warsh’s inaugural keynote at the Jackson Hole Economic Policy Symposium on Friday for signals on the U.S. rate outlook and its potential effect on European bond markets.