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TREASURIES-Benchmark yields hit 10-month high on BOJ move, debt supply

* 10-year yields hit 10-month high

* BOJ trims bond buying, sparking sell-off

* U.S. corporate debt issuance weighs on market

* 3-year yields rise to highest since 2007

NEW YORK, Jan 9 (Reuters) - Yields on the 10-year U.S. Treasury note reached a 10-month high on Tuesday, after the Bank of Japan said it will trim its purchases of Japanese government bonds and U.S. corporate debt hit the market. The Japanese announcement raised speculation the country's central bank may wind down its monetary stimulus this year.

Although the move was in line with the BOJ's planned reduction in bond buying, it highlights the sensitivity of markets to global monetary policy. "We dont necessarily see this as a signal of impending policy change, but investors are very sensitive to the overall monetary policy backdrop, especially out of the major central banks," said John Briggs, head of Americas strategy at NatWest Markets in Stamford, Connecticut. Tuesday's upward pressure on yields may in part be a response to corporate debt supply. Sempra Energy and Athene Holding Ltd were among companies selling new debt on Tuesday, after $9.05 billion in U.S. high-grade bonds reached the market on Monday, according to Thomson Reuters' IFR.

"Theres a lot of investment-grade corporate supply that is normally expected in January, and were seeing some of that come through this week," said Priya Misra, head of global rates strategy at TD Securities in New York. "More duration hitting the market is whats resulting in this bear steepening move." Lifetime records set by the Dow Jones Industrial Average , the S&P 500 and the Nasdaq Composite may also be contributing to the sell-off in Treasuries. Yields on 3-year notes rose to their highest since 2007 ahead of the U.S. Treasury Department's sale of $24 billion in new supply. The auction did little to move yields, which hovered around the record number. The U.S. Treasury Department on Tuesday sold the 3-year government notes at a yield of 2.080 percent, the highest at an auction for this debt maturity since May 2007, Treasury data showed. The United States is selling $56 billion in new supply this week, with 10-year notes on Wednesday and 30-year bonds on Thursday. The U.S. 10-year note yielded 2.546 percent at 2:50 p.m. EST (1950 GMT), the highest since March 15. The 3-year note yield, which is sensitive to traders' views on Fed policy, was 2.074 percent at 2:53 p.m. ET (1953 GMT), its highest since the instrument was reissued in 2007.

January 9 Tuesday 2:31PM New York / 1931 GMT Price

US T BONDS MAR8 150-11/32 -1-12/32 10YR TNotes MAR8 123-32/256 -0-92/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 1.425 1.4501 0.036 Six-month bills 1.5675 1.602 -0.005 Two-year note 99-212/256 1.9642 0.004 Three-year note 99-116/256 2.0682 0.008 Five-year note 99-24/256 2.3189 0.032 Seven-year note 98-180/256 2.4534 0.046 10-year note 97-132/256 2.5366 0.055 30-year bond 97-100/256 2.8808 0.066

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.25 0.75

spread

U.S. 3-year dollar swap 18.75 1.00

spread

U.S. 5-year dollar swap 4.00 0.25

spread

U.S. 10-year dollar swap -1.50 0.00

spread

U.S. 30-year dollar swap -21.00 -0.50

spread

(Reporting by Kate Duguid; Editing by Jeffrey Benkoe)