By Joseph Adinolfi, MarketWatch

European bond yields soared on Thursday, with German yields touching an 11-month high, after the European Central Bank said it would begin tapering its monthly bond purchases beginning in April.

The surprised many market strategists and investors who had expected the central bank to continue buying EUR80 billion ($86 billion) of bonds a month for most of 2017. Instead, the central bank said it would taper the program to EUR60 billion ($64 billion) in April. The program, which was previously set to expire in March, has been extended through the end of 2017.

Draghi also said the ECB would be comfortable buying bonds with yields below the ECB's deposit rate of minus 0.4%.

However, some maintained that the argument for tapering the program sooner rather than later had strengthened in recent months after a spate of optimistic eurozone economic data. Eurozone manufacturing growth soared to a three-year high in October, while the currency union's economy expanded by 0.3% in the third quarter, matching the pace from the second quarter.

The yield on the 10-year German bund, considered the European benchmark, rose 8.8 basis points to 0.433% after the announcement, its highest level since mid-January. The Italian 10-year yield jumped 11 basis points to 2.049%. Meanwhile, the 10-year Treasury yield rose six basis points to 2.404%.

The two-year Treasury note yield rose 1.6 basis point to 1.112%, while the 30-year yield climbed 3.7 basis points to 3.063%.

"The ECB may have pulled off the biggest central bank shock of the year, considering the Fed's rate hike next week is already 100% priced in by the market," said Kathleen Brooks, research director at City Index Direct.

Negative interest rates, along with the bond buying program, helped drive European yields to historic lows earlier this year. But with the central bank sopping up a large chunk of incoming supply, investors worried that the supply of bonds that met the central bank's criteria would soon dry up, forcing the ECB to either adjust its terms, or taper the program.

Over the weekend, Italians voted down a slate of constitutional reforms, which was seen as a repudiation of the dominant political establishment. Some posited that the referendum's defeat would give the ECB an excuse to extend its bond buying program at its current pace (http://www.marketwatch.com/story/italy-referendum-may-force-ecbs-hand-on-further-qe-2016-11-30).

Looking ahead to next week, strong U.S. economic data and hawkish comments from a bevy of Fed officials have helped convince investors that the Federal Reserve will raise interest rates on Wednesday. They will also grapple with many new Treasury issuance next week, including auctions of 10-year and 30-year bonds.

(END) Dow Jones Newswires

December 08, 2016 08:48 ET (13:48 GMT)