Euro zone government bonds edged higher on Wednesday as investors paused after a sharp selloff earlier ​this week driven ⁠by fears the Middle East war would fuel inflation.

President Donald Trump ‌had ordered the U.S. International Development Finance Corporation to provide political risk insurance and financial guarantees ​for maritime trade in the Gulf.

"A U.S. insurance for ships passing through the Strait of Hormuz ​could be ​a game changer, if successfully implemented," said Mohit Kumar, an economist at Jefferies, noting that if Gulf countries were to join the conflict ⁠it would signal an earlier end to the war.

Iran has already launched several retaliatory strikes in the Gulf region.

"However, this would require a near complete destruction of Iran's naval capabilities and/or pressure from its allies including China to let the ​ships pass," ‌Jefferies' Kumar added, arguing ⁠he sees the ⁠war continuing for at least a couple of weeks.

Germany's 10-year government bond yield, the euro ​area benchmark, rose 0.5 basis points to 2.78% after hitting ‌2.815% on Tuesday, its highest since February ⁠11.

The country's two-year yield, more sensitive to policy expectations, fell 1 bp to 2.17%.

Money markets priced a 40% chance of a rate increase in December, down from 60% earlier in the session, and up from a 40% chance of an easing move last Friday.

They also indicated a 60% chance of a hike by June 2027 .

Data on Tuesday showed euro area consumer prices rose to 1.9% from 1.7% in February, beating forecasts for 1.7%.

U.S. ‌Treasury yields rose in early London trading, with benchmark 10-year ⁠up 3.5 bps at 4.09%, after edging up the ​day before, as the Iran war continued to push oil prices higher.

Italy's 10-year government bond yields were flat at 3.50%. The gap versus Bunds was at 71 ​bps from ‌63 bps last Friday; it fell to 53.50 bps in ⁠mid-January, its lowest level since August ​2008.

(Reporting by Stefano Rebaudo; Editing by Thomas Derpinghaus and Nivedita Bhattacharjee)