US President Donald Trump warned Tehran it would face more devastating attacks if it does not agree to peace.

Markets were also awaiting the release of the flash composite purchasing managers’ index for Germany and the euro area.

German 10-year government bond yields, which serve as the benchmark for the wider euro zone, rose 2 basis points (bps) to 2.53%.

The yield on benchmark US 10-year notes was up 2 bps at 4.40%.

Oil prices jumped to their highest since January.

Holger Schmieding, chief economist at Berenberg, said that a protracted disruption of oil and gas exports from the Gulf region “seems unlikely”.

An Iranian closure of the Strait of Hormuz, the crucial conduit for around 20% of global oil and gas shipments, is the key economic risk for most market watchers.

“However, trying to throttle energy exports from the Gulf region would be a high-risk strategy for Tehran,” Schmieding added, arguing that such a move would likely upset China and many other countries that do not usually side with the US.

Money markets priced in a European Central Bank (ECB) deposit facility rate at 1.79% in December compared to 1.77% late Friday.

The yield on two-year German government bonds – more sensitive to expectations for ECB policy rates – was up one bp at 1.87%.

Italy’s 10-year yields rose 1.5 bps to 3.54%. The Italian yield gap versus Bunds – a market gauge of the risk premium that investors demand to hold Italian debt – widened to 101 bps.