By Marius Zaharia
LONDON, Nov 13 (Reuters) - German Bund yields hit three-week highs on Wednesday, propped up by speculation that the U.S. Federal Reserve could start trimming its stimulus programme sooner than expected.
Surprisingly strong U.S. October payroll data on Friday saw many investors reassess the timing of the Fed's move. Prior to the jobs report, most had expected the Fed to hold off until March, but now a tapering move in January or even December is seen as possible.
On Tuesday, Atlanta Fed President Dennis Lockhart, seen as a centrist in monetary policy terms, did not rule out tapering in December, though he also said the Fed should keep policy very loose.
Narayana Kocherlakota, President of the Minneapolis Fed, said the central bank should be ramping up, not dialing back, its efforts to stimulate the economy.
German 10-year Bund yields were 0.2 basis points lower at 1.78 percent, having hit a new three-week high of 1.796 percent early in the session, when volumes are thin.
Bund futures rose 3 ticks to 140.73, just off three-week lows of 140.53 hit on Tuesday.
'Today we could see a move back down in yields as we had some dovish comments from Fed officials last evening,' said Jan von Gerich, fixed income chief analyst at Nordea in Helsinki.
'But near term, I think yields would continue to rise in light of the payrolls numbers,' he said, adding he saw U.S. 10-year T-note yields rising towards 3 percent.
U.S. yields were 1 basis point lower at 2.757 percent. German bonds often track moves in their top-rated U.S. peers.
Germany is due to sell up to 5 billion euro of new two-year bonds on Wednesday, with last week's European Central Bank rate cut and speculation of further easing likely to support demand.
'Given the deflationary risks which the ECB has confirmed through their rate cuts ... there still is likely to be upside in front-end core paper more generally,' Credit Agricole rate strategist Peter Chatwell said in a note.
Italy will offer debt worth up to 5.5 billion euros, including a 30-year bond last sold in July. Little pressure is expected on the country's bond market in the near term as Rome can afford to slow down issuance this year after last week's record sale of inflation-linked bonds.
(Reporting by Marius Zaharia; Editing by John Stonestreet) Keywords: MARKETS BONDS/EURO
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