September 14, 2017 / 7:37 AM / a year ago

German 10-year bond yield rises to 3-1/2-week high

* Bund yields rise to 3-1/2 week high

* Supply a theme of the week

* Weaker euro another headwind

* Euro zone periphery govt bond yields

By Dhara Ranasinghe

LONDON, Sept 14 (Reuters) - Germany’s 10-year government bond yield rose to its highest level in around 3-1/2 weeks on Thursday, as this week’s hefty debt supply from across the region and a weaker euro weighed on sentiment.

Bond yields in Germany, the bloc’s biggest economy and its benchmark bond issuer, are up 13 basis points from 2-1/2 month lows hit at the end of last week.

A bond market selloff began on Friday after a report that European Central Bank rate-setters agreed last week to start reducing bond purchases, and has accelerated this week as markets brace for considerable bond supply.

Ireland will seek to raise 1 billion euros in a bonds sale on Thursday. That follows an unexpected 3.5 billion euro sale of 100-year bonds from Austria earlier this week.

Germany, the Netherlands and Italy have also held bond auctions as supply from the region picks up after a summer lull.

Investors often sell existing bonds to make way for new ones, putting upward pressure on bond yields.

“Supply may be easing today but it remains the theme of the week,” said Rabobank fixed income strategist Lyn Graham-Taylor.

Most euro zone bond yields were flat to 1 basis point higher in early trade.

Germany’s 10-year bond yield rose 1 bps to almost 0.42 percent — the highest in around 3-1/2 weeks.

Analysts said yields also faced upward pressure from a weakening euro, which could encourage the ECB to bring forward plans for a withdrawal of its massive bond-buying stimulus.

The euro has weakened about 1.7 percent from 2-1/2 year highs hit against the dollar last week.

“The weaker euro has amplified the headwinds facing the bond market,” said Rainer Guntermann, a strategist at Commerzbank. “With the euro off its highs, it is easier for the ECB to taper next year.”

German central bank head Jens Weidmann and ECB Executive Board Member Yves Mersch are expected to speak later on Thursday.

Investors will also be watching a Bank of England meeting and U.S. inflation data later on Thursday.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=

Reporting by Dhara Ranasinghe; Editing by Catherine Evans

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