LONDON - Euro zone bond yields fell on Wednesday led by Italian bonds, after being harder hit since the outbreak of ​the Iran war, ⁠as falling oil prices boosted risk appetite among traders.

The German 10-year Bund ‌yield was last down 5.6 basis points at 2.96%, while Italy's 10-year yield was down nearly 9 bps ​at 3.85%.

Italian bonds have been worse-hit, with yields gaining nearly 60 bps since then, compared with ​a rise ​of around 32 bps for German Bunds. Italy is more dependent on imports of fossil fuels than many of its neighbours.

"I would pin it on general ⁠risk appetite ... every higher beta in FX and bonds (are) outperforming this morning including Italy and Greece," said Kenneth Broux, head of corporate research FX and rates at Societe Generale.

He said market moves showed logical price action, with traders moving to buy back lagging ​assets first. "This may ‌be all short-lived if ⁠peace talks do ⁠not take place or go nowhere."

Israel and Iran exchanged airstrikes on Wednesday, as Iran's military ​rejected President Donald Trump's assertion the U.S. was in negotiations to ‌end the war which has roiled energy and financial ⁠markets, saying the U.S. is negotiating with itself.

It follows reports overnight that the U.S. sent Iran a 15-point plan aimed at ending the Middle East war, according to a source.

Oil prices softened, with Brent crude futures dropping 5% to around $95 a barrel, while the European benchmark STOXX 600 rallied, rising 1.3%.

Traders are digesting the latest survey on German business morale which fell in March, although by less than expected.

The German 2-year Schatz yield - the most sensitive to expectations for interest rates and ‌inflation - fell 5.4 bps to 2.88%.

Elsewhere, on Monday European Central Bank ⁠president Christine Lagarde said even a "not-too-persistent" overshoot of the central bank's ​inflation target from the current energy shock may warrant some moderate policy tightening.

Market watchers are placing a 63% chance of a 25 bps rate hike at the ECB's next meeting. ​Bets on ‌rate hikes mark a stark turnaround from before the war, when ⁠the balance was towards a cut ​this year.

(Reporting by Lucy Raitano; Editing by Amanda Cooper and Arun Koyyur)