LONDON: Germany's longest-dated bonds led a sell-off in euro zone debt markets on Tuesday on strong US economic data, expectations a US tax overhaul will be passed this week, and a rise in Germany's issuance plans for 2018.
Germany, the euro zone benchmark government bond issuer, said on Tuesday it plans to borrow more money on capital markets in 2018 than this year because it will have to pay back more old debt than it repaid in 2017.
Its bond agency said it planned to sell 16 billion euros of 30-year Bunds, up from around 11 billion euros in 2017.
It was the only section of the curve where supply is expected to rise in 2018 compared with this year.
Yields on Germany's 30-year Bund rose 7 basis points to 1.18 percent by the afternoon and were set for their biggest one-day jump in almost six weeks.
"The fact the German Treasury is issuing more into the 30-year part of the curve is one of the reasons you would see market movements weighing on the curve," said ABN Amro rates strategist Kim Liu.
Most 10-year euro zone bond yields were up 5-6 basis points on the day, although analysts stressed that thin illiquid year-end markets were exacerbating the price moves.
The Republican-controlled Congress appeared all but certain to pass a tax cut bill after two Senate Republican holdouts agreed on Monday to support the overhaul backed by President Donald Trump.
"It would be a major surprise if that didn't happen, although there are as ever still a few uncertainties as the House and then Senate vote on the reconciled bill," said David Page, senior economist at AXA Investment Managers on the Reuters Global Market Forum.
The House of Representatives, which is expected to adopt the tax bill, was due to vote first at around 1830 GMT on Tuesday, Republican aides said on Monday. The Senate vote is expected to follow either later on Tuesday or on Wednesday.
US Treasury yields climbed to session highs on Tuesday as domestic home construction unexpectedly rose in November to a 13-month peak. A key market gauge of long-term inflation expectations in the euro area meanwhile rose to a 10-month high, at above 1.7 percent.
European Central Bank rate setter Ardo Hansson said on Tuesday that the ECB should consider changing its policy message, which includes a pledge to buy bonds until inflation recovers, as the outlook for inflation is improving.
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