(Updates headline, lead, yields, add analyst quote and JGB and jobs news)
By Kate Duguid
NEW YORK, Aug 1 (Reuters) - The yield on the benchmark 10-year U.S. Treasury note broke above 3 percent on Wednesday for the first time since June 13 after the government said it intended to increase its borrowing from the bond market in the coming quarter to fund spending and debt obligations.
The U.S. Treasury announced at 8:30 a.m. EST (1230 GMT) it will introduce a new benchmark 2-month bill starting in October 2018 and increase the size of debt auctions in the coming months. The government needs to fund a rising budget deficit even as the Federal Reserve continues to reduce its massive bond portfolio.
Yields across maturities rose to session highs as prices fell on expectations that supply would grow faster than demand while the Fed raises U.S. interest rates.
“You are seeing supply pressure and continuing central bank developments pushing yields higher,” said John Canavan, market strategist at Stone & McCarthy Research Associates in New York.
The yield on benchmark 10-year Treasury note hit a session high of 3.016 percent, the first time it has surpassed 3 percent in nearly two months. It was last at 3.001 percent, up 3.7 basis points from late Tuesday.
The 30-year bond yield was up 4.9 basis points from late Tuesday to 3.131 percent. The two-year yield was last at up 1.3 basis points from Tuesday at 2.682 percent.
Treasury’s announcement follows previous increases in auction sizes following the department’s quarterly meetings in February and May. U.S. government spending growth combined with the reduction in revenue following President Donald Trump’s $1.5 trillion tax cuts is expected to increase the fiscal deficit to $1 trillion by 2020, according to the Congressional Budget Office.
This year, the deficit is expected to grow to $833 billion from $666 billion in the budget year ended last September, according to the Treasury’s June budget report.
Yields also moved higher in response to strong U.S. jobs data released on Wednesday morning and after the biggest selloff of Japanese bonds in two years.
ADP said U.S. domestic private employers added 219,000 workers in July, more than the 185,000 forecast among analysts polled by Reuters.
Japanese bond yields soared to a 1-1/2 year high as investors tested the limits of the central bank’s new commitment to allow debt markets to move more freely, a day after it announced tweaks to its massive stimulus program. (Reporting by Kate Duguid. Additional reporting by Richard Leong; Editing by Bernadette Baum and David Gregorio)