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 1.4 basis points 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! later dropped to $71.10, its lowest since the war began in late February, and last traded at $71.48.

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

U.S. Treasury yields were higher on Wednesday to kick off July but retreated from earlier levels after a round of economic data and comments from Federal Reserve Chairman Kevin Warsh, who said during a panel of central bankers in Sintra, Portugal that inflation expectations and inflation risks have come down in recent weeks.

On the same panel, European Central Bank President Christine Lagarde said the risks to euro zone inflation and economic growth are now more broadly balanced than a few weeks ago, given the recent fall in oil prices.

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 2-year bond yield (DE2YT=RR), which is sensitive to ECB rate expectations, was last down 2.4 bps at 2.511%.

Traders in money markets were last pricing in about 16 bps of monetary tightening this year, meaning they see another increase as highly likely but not certain.

"If energy prices remain around current levels (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.