Concerns that the Middle East conflict could fuel inflation have driven euro zone government bond ​yields towards ⁠their biggest weekly rise since March last year, when Germany ‌announced plans for a major increase in fiscal spending.

Germany's 10-year government bond yield, ​the bloc's benchmark, dropped one basis point to 2.84% on Friday. It reached ​2.853% on Thursday, ​its highest since February 9, and is on track for a 19-bp weekly rise.

Money markets are pricing in ⁠a 60% chance of a European Central Bank rate hike in December. They also imply a 90% chance of a rate rise by June 2027.

Germany's two-year yields, which are more sensitive to policy ​expectations, were ‌down 2 ⁠bps at 2.24%. ⁠They hit 2.259% on Thursday, their highest since March 6.

Three ECB policymakers ​warned on Thursday that euro zone inflation would ‌likely rise, and growth weaken, if ⁠the war in Iran were to drag on and draw in more countries.

There is no "preset pace for our monetary policy stance," President Christine Lagarde said on Thursday.

Some economists remained cautious about expecting a tightening move by the ECB.

"Traditionally, oil price shocks tend to be stagflationary for the euro zone, which often motivated the ECB to simply look through oil-driven inflation surges," said Carsten ‌Brzeski, head of macro strategy at ING.

"However, the ⁠risk of such an approach is falling ​behind the curve, as could be witnessed in 2022," he added.

Italy's 10-year government bond yields rose one bp to 3.58%. The gap ​versus Bunds ‌stood at 73 bps. It hit 53.50 in mid-January, ⁠its lowest since August ​2008.

(Reporting by Stefano Rebaudo. Editing by Mark Potter)