JGB 10-yr yield hits 3-mth high after weak auction

* Ten-year auction tail widest in nine months

* Investors fret over size of debt issuance this FY and next

* Worries about outlook for U.S. Treasuries also hurt JGBs

TOKYO, Nov 5 (Reuters) - The 10-year Japanese government bond yield hit a three-month high on Thursday as investors shied away from newly-auctioned 10-year bonds due to worries about the size of debt issuance for the rest of the fiscal year and next year.

The Ministry of Finance's auction of 10-year JGBs produced a tail of 0.14, the widest since a 10-year auction in February. A wide tail shows there is less consensus about where bonds should be priced and is a sign of weak auction demand.

Worries about the possibility of further increases to JGB issuance later this fiscal year and the size of debt issuance next fiscal year, as well as concerns about the near-term outlook for U.S. Treasuries likely led to the weak auction result, analysts said.

"In the United States, there are going to be some pretty frequent bond auctions next week. If overseas bond markets were to fall on worries about over-supply, you may see similar moves here," said Mari Iwashita, market economist at Nikko Cordial Securities. Rather than just focusing on how large JGB issuance may be in the next fiscal year, market players now seem to be finding additional reasons to be bearish on JGBs, she said.

The 304th 10-year JGB yield rose 3.5 basis points to 1.435 percent JP10YTN=JBTC, the highest yield for a benchmark 10-year JGB since August.

Lead 10-year JGB futures hit a three-month low of 137.54 2JGBv1 after the auction results, but later trimmed their losses to stand at 137.66, still down 0.30 point on the day.

The MOF said last week that it would increase its issuance of JGBs to the market for the fiscal year to March 2010 by 2.1 trillion yen ($23.18 billion) to 132.3 trillion yen, to offset weak demand for JGBs among retail investors. [ID:nT78079]

Investors are bracing for the possibility of further increases in debt issuance this fiscal year to offset an expected tax revenue shortfall. (Reporting by Masayuki Kitano; Editing by Joseph Radford)