Euro zone government bond yields inched higher on Tuesday, as Brent crude futures remained elevated near $90 per barrel, threatening the inflation outlook and strengthening the case for tighter policy from the European Central Bank.
Investors were also watching Britain's gilt market after new Prime Minister Andy Burnham picked former defence minister John Healey - who was a junior minister in the Treasury from 2002 to 2007 - as his finance minister.
Germany's 10-year bond yield was up 1.5 basis points to 3.165%, its highest level in eight weeks.
"Bond markets remain at the mercy of oil prices," Hauke Siemssen, rates strategist at Commerzbank, said.
Energy prices have been rising following tit-for-tat strikes by the U.S. and Iran, with maritime traffic through the vital Strait of Hormuz chokepoint effectively shut down.
Brent futures touched a five-week high on Monday while benchmark Dutch wholesale gas prices rose to their highest intraday level in four months on the same day, adding to worries about inflation.
The European Central Bank meets this week and will most likely hold its deposit rate steady at 2.25%, following a rate rise in June.
Further ahead, investors were pricing in about 45 basis points of tightening from the ECB by the end of the year, or the equivalent of about two quarter-point rate hikes.
Germany's two-year bond yield, which is sensitive to changes in ECB policy expectations, was up 0.5 bps at 2.781% after touching a two-year high of 2.8174% on Monday.
