UPDATE 2-US Treasury plans shift to longer debt maturities

* Treasury plans record 3-, 10-, 30-year debt refunding

* 30-year inflation-indexed note to replace 20-year TIPS

* Treasury plans gradual shift to longer-term debt

* Debt limit breach seen by mid- to late December (Adds details from news conference, analyst comment)

By David Lawder

WASHINGTON, Nov 4 (Reuters) - The U.S. Treasury on Wednesday announced a record $81 billion quarterly debt refunding and said it will replace its 20-year inflation-indexed note with a 30-year version as it seeks to lengthen maturities to cope with bulging federal deficits.

Treasury officials said they were considering more frequent auctions of Treasury Inflation-Protected Securities and will expand sales of normal longer-dated notes and bonds while paying down bills, which mature in a year or less.

The U.S. government has financed record borrowing in the past year to battle a recession and fund deficits largely by increasing sales of shorter-term debt that will need refinancing in the next two years at potentially higher rates.

Because high deficits will continue for years, Treasury officials now want to lock in financing for longer periods, gradually lengthening the average Treasury coupon maturity to the historical average of 60 months over the coming year from about 50 months now. This may grow to 84 months over the medium term, the officials said.

"Let us be unequivocal: there will be no dramatic shifts between bills and coupons," Karthik Ramanathan, the Treasury's acting assistant secretary for financial markets told a news conference. "This will take place in a gradual and deliberate manner, mindful of what market participants and supply expectations are."

The Treasury said net debt issuance will remain high in fiscal 2010 at $1.5 trillion to $2 trillion as it tackles cumulative deficits of $3.5 trillion over the next three fiscal years. It issued a net $1.7 trillion in fiscal 2009, which ended Sept. 30.

"Even though Treasury says it doesn't time the market, it makes sense to get as much cheap financing as possible," said George Goncalves, head of fixed income strategy at Cantor Fitzgerald in New York.

The Treasury said that next week it will sell $40 billion of 3-year notes, $25 billion of 10-year notes and $16 billion of 30-year bonds, a total of $6 billion more than it announced at the last refunding in August.

The auctions will refund about $38.5 billion of privately held securities maturing or called on Nov. 15 and raise about $42.5 billion in new cash. For details on the auctions please click on [ID:nTRU000417].

BETTER INFLATION PROTECTION

The Treasury will launch semi-annual auctions for the 30-year TIPS, last issued in 2001, on Feb. 22, 2010, followed by a reopening auction in August.