June 3, 2015 / 3:57 PM / 5 years ago

TREASURIES-Yields rise to three-week peaks in line with German bonds

* U.S. ADP payrolls rise in May, helps yields

* ECB ups inflation forecast, lifts Bund, Treasury yields

* ISM services slows in May, but impact limited (Adds context on selloff in bond market)

By Gertrude Chavez-Dreyfuss

NEW YORK, June 3 (Reuters) - U.S. benchmark Treasury debt yields rose to three-week highs on Wednesday, bolstered by a solid U.S. private sector employment report for May and gains in German bond yields after the European Central Bank raised its inflation forecast for this year.

Yields on 10-year German bunds jumped to 0.8 percent , the highest since late October last year. That lifted both U.S. 10-year and 30-year yields to three-week peaks.

“We’re tracking the Bund market right now,” said Justin Lederer, Treasury strategist, at Cantor Fitzgerald in New York.

The selloff in bonds marks the second such sharp upward move in yields in the last six weeks. Bond yields jumped dramatically between mid-April and mid-May after European inflation figures came in stronger than expected, spurring intense selling in European sovereign yields as investors betting heavily on the rally’s continuation had to shift to avoid big losses.

At a yield of 2.33 percent, the 10-year was within a couple of basis points of levels not seen since November.

A decent report on U.S. private sector employment also underpinned the rise in U.S. government bond yields. Payroll processor ADP said U.S. private employers added 201,000 jobs in May, the largest increase since January. The report is seen as a precursor to the U.S. Labor Department’s report on jobs growth, scheduled for Friday.

In mid-morning trading, U.S. 30-year Treasuries were last down more than a point in price to yield 3.089 percent, from a yield of 3.016 percent late Tuesday. Thirty-year bond yields hit a three-week high of 3.096 percent.

U.S. 10-year notes, meanwhile, fell 21/32 in price to yield 2.342 percent, from a yield of 2.265 percent late on Tuesday. Ten-year-yields hit a three-week peak as well of 2.35 percent.

ECB President Mario Draghi on Wednesday reaffirmed the bank’s commitment to quantitative easing, but what caught the market’s attention was the upward revision in inflation forecasts.

After leaving interest rates at a record low 0.05 percent, the ECB raised its inflation forecast to 0.3 percent for this year, having previously put it at zero, saying its trillion-euro-plus asset buying program was paying off but had to be seen through.

“All in all, the ECB’s quantitative easing has arrested deflation risk but it remains cautious on the success of its current stimulus measures with respect to addressing downside risks to medium-term stability,” Lena Komileva, chief economist, director at G+ Economics in London. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith Mazzilli)

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