* German 30-year & 10-year Bunds yields reach 3-week high
* Italy 10-year bond yield hit highest level since October
* U.S. likely to pass tax overhaul this week
* Most euro zone bond yields up 5-9 bps
* Euro zone inflation expectations at 10-month high
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Update prices, adds quote)
By Fanny Potkin
LONDON, Dec 19 (Reuters) - Germany’s longest-dated bonds led a sell-off in euro zone debt markets on Tuesday following a rise in the country’s issuance plans for 2018, strong U.S. economic data, and expectations that a U.S. tax overhaul will be passed this week.
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 the 30-year Bund rose nearly 9 basis points to 1.20 percent by afternoon trades and were set for their biggest one-day jump in almost six weeks.
Germany’s 10-year Bund yield jumped to 0.384 percent , a three-week high.
“The sell-off (for 30-year Bunds) was caused by the change in supply outlook from the German finance agency, which is forcing all yields higher in the euro area,” said Peter Chatwell, head of euro rates strategy at Mizuho.
Most 10-year euro zone bond yields were up 5-9 basis points on the day, though analysts stressed that thin illiquid year-end markets were exacerbating the price moves.
The strongest impact was felt on Italy, whose 10-year bond yield hit 1.9 percent, its highest level since late October.
“This sell-off is being problematic for some of the debt metrics that Italy is continuing to wrestle with”, said Chatwell. “There are fundamental implications for Italy if yields rise in European bond markets.”
In the United States, 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.
U.S. 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.
Reporting by Fanny Potkin; Editing by Hugh Lawson