The benchmark U.S. Treasury 10-year yield edged above 3 percent on Wednesday as jitters about growing federal borrowing spurred more selling in the U.S. government bonds, paving the path for it to visit levels not seen since July 2011. Increased government borrowing, together with inflation concerns due to rising commodity prices and bets on further rate increases from the Federal Reserve, have touched off the current bond market sell-off, analysts said. The expected surge in government debt issuance stemmed from the revenue shortfall as a result of the massive tax overhaul last December and increased spending linked to the budget agreement inked in February. "Supply is clearly increasing with a rising deficit. We are seeing some signs of inflation. Those things are very negative for bonds," said Don Ellenberger, head of multisector strategies at Federated Investors in Pittsburgh. Two huge trades in the U.S. Treasury and German debt futures grabbed traders' attention. At 11:29 a.m. (1529 GMT), a market player bought 100,174 contracts in 5-year T-note futures for June delivery at a price of 100-17/32 and sold 63,887 contracts in June 10-year T-notes at 119-3/32, CME Group data showed. Shortly after, a trade involving the sale of 65,362 contracts of 5-year German Bobl futures at a price of about 130.60 and purchase of 29,145 contracts of 10-year Bund futures at a price of about 157.80 transacted, according to traders and EUREX data. "These are gigantic trades," said Greg Adamsick, director of global futures and options at RCM Alternatives in Chicago. The U.S. curve steepener trade is likely based on expectations that longer-dated yields would rise further with supply and inflation, while the German curve flattener trade is underpinned by the view of slowing euro zone growth and the European Central Bank will unlikely raise rates until the second half of 2019, traders said. INVESTORS EMERGE AT AUCTIONS On Wednesday, the U.S. Treasury Department sold $17 billion in 2-year floating-rate notes following by a $35 billion auction of 5-year securities to solid investor demand. They followed mediocre demand for $32 billion of a new 2-year issue on Tuesday. The latest 5-year issue fetched a yield of 2.837 percent, the highest yield at a 5-year auction since September 2008. The Treasury will complete this week's supply with a $29 billion auction of 7-year notes on Thursday. It is unclear where bond yields would peak as their rise has unnerved Wall Street and holders of risky assets. "This market is not ready to capitulate," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. The 10-year yield was nearly 5 basis points higher than late Tuesday at 3.030 percent. If it were to climb above 3.04 percent, which was its peak in January 2014, it will likely test levels last seen in the summer of 2011, analysts said. The 5-year Treasury yield was up 3 basis points at 2.838 percent after rising to 2.854 percent earlier Wednesday, which was its highest since August 2009. Two-year yield reached 2.508 percent, its highest level since September 2008 before retreating to 2.492 percent, up 1 basis point from late Tuesday. The 30-year yield hit a two-month high at 3.169 percent. April 25 Wednesday 3:10PM EDT/ 1910 GMT Price US T BONDS JUN8 141-22/32 -0-27/32 10YR TNotes JUN8 119-12/256 -0-72/256 Price Current Net Yield % Change (bps) Three-month bills 1.82 1.8538 -0.013 Six-month bills 1.9825 2.0304 -0.011 Two-year note 99-198/256 2.4919 0.011 Three-year note 99-66/256 2.6363 0.014 Five-year note 98-118/256 2.8366 0.026 Seven-year note 97-212/256 2.974 0.038 10-year note 97-168/256 3.0277 0.045 30-year bond 95-244/256 3.2118 0.043 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 27.00 0.25 spread U.S. 3-year dollar swap 22.50 1.25 spread U.S. 5-year dollar swap 12.00 1.50 spread U.S. 10-year dollar swap 3.00 0.75 spread U.S. 30-year dollar swap -12.25 1.25 spread (Additional reporting by Lewis Krauskopf; editing by Jonathan Oatis)