Euro zone bond yields rose slightly on Wednesday after Iran said it would not meet U.S. delegates for talks in Qatar, casting doubt on the peace process, and as moves in U.S. Treasuries spilled over into Europe.

Yet shorter-dated euro zone yields dipped after data showed inflation slowed more than expected in June, reducing pressure on the European Central Bank to raise interest rates again.

Germany's 10-year bond yield (DE10YT=RR), the benchmark for the bloc, rose 1.5 basis points (bps) to 2.924%.

Oil prices initially rose after Iran said on Tuesday that it would not meet top U.S. envoys who flew to the region, suggesting the two sides remain far apart on key pillars of the framework deal.

Yet Brent crude ICEEUR:BRN1! fell back and last traded at $71.90, around its lowest since the war began in late February.

A rise in U.S. Treasury yields also seemed to be having an impact.

Analysts said the move could be driven by quarter-end rebalancing — when investors sometimes sell bonds to raise cash — as well as nerves about Federal Reserve Chair Kevin Warsh's appearance at the European Central Bank conference in Sintra, Portugal, on Wednesday.

"Markets seem rather anxious ahead of Warsh at Sintra, as well as the non-farm payrolls report tomorrow," said Pooja Kumra at TD Securities, referring to jobs data that is expected to continue a string of strong U.S. releases keeping the pressure on the Fed to raise interest rates.

EURO ZONE INFLATION DROPS

Data on Wednesday showed euro zone inflation slowed to 2.8% in June, down from 3.2% in May and below the 3% expected by economists.

Germany's two-year bond yield (DE2YT=RR), which is sensitive to ECB rate expectations, fell slightly and was last down 1 basis point at 2.528%.

Traders in money markets were last pricing in about 23 bps of monetary tightening this year, meaning they see another increase as highly likely but not certain.

"If energy prices remain around current levels it (inflation) will fall again in July," said Jack Allen-Reynolds at Capital Economics.

"This makes us more confident in our view that the ECB will not raise interest rates any further."

ECB policymakers have struck different tones, with Alexander Demarco saying on Wednesday that the central bank should not rush into a further increase while Joachim Nagel has said inflation remains too high.