(Updated to mid-afternoon New York time)

By Karen Brettell

Dec 11 (Reuters) -

U.S. Treasury yields rose on Wednesday as the Treasury

Department sold long-dated supply and data showed a widening

U.S. budget deficit.

That overturned an earlier drop in yields after consumer

price inflation data for November reinforced bets the Federal

Reserve will cut rates by 25 basis points next week.

Longer-term debt concerns were seen weighing on the

market after the U.S. government posted a

$367 billion budget deficit

for November, up 17% from a year earlier.

"Not only does today's report from the Treasury confirm

that we've borrowed $624 billion so far this fiscal year - $10

billion per day - but on a rolling basis, we've borrowed $2.1

trillion in the last twelve months. That's an astonishing sum

especially when considering the huge challenges ahead," the

Committee for a Responsible Federal Budget said in a release.

The Treasury Department earlier saw good demand for a

$39 billion sale of 10-year notes, the second sale of $119

billion in coupon-bearing sales this week.

The debt sold at a high yield of 4.235%, more than a basis

point below where they had traded before the sale. Demand was

2.70 times the amount of debt on offer, the highest bid to cover

ratio since at least March 2022.

The U.S. government saw solid demand for a $58 auction of

three-year notes on Tuesday and will also sell $22 billion in

30-year bonds on Thursday.

Benchmark 10-year note yields were last up 5

basis points on the day at 4.271%.

Interest rate sensitive two-year note yields

rose 1 basis points to 4.159%.

The yield curve between two-year and 10-year notes

steepened by around three basis points to 11.3

basis points.

Yields fell earlier after data showed that both headline

and core consumer inflation rose by 0.3% in November, in line

with economists' expectations, keeping the Fed on track for

another interest rate cut.

"It was largely as expected. I don't think it will

change the Fed's thinking, so I expect them still to cut rates

next week," said Eric Winograd, director of developed market

economic research at AllianceBernstein in New York.

The consumer price index posted the largest gain since April

after advancing 0.2% for four straight months. In the 12 months

through November, the CPI climbed 2.7% after increasing 2.6% in

October.

Excluding the volatile food and energy components, the CPI

rose by the same margin for the fourth consecutive month. In the

12 months through November, the so-called core CPI gained 3.3%,

following a similar advance in October.

"With the payrolls report behind us and now the inflation

report behind us, there's nothing stopping the Fed from cutting

25 bps next week," said Brian Jacobsen, chief economist at Annex

Wealth Management in Menomonee Falls, Wisconsin.

Traders are pricing in a 95% probability of a 25 basis point

cut at the conclusion of the Fed's Dec. 17-18 meeting, up from

86% before the data, according to the CME Group's FedWatch Tool.

A positive sign in the data was that shelter inflation

continued to slow, but services and shelter inflation are still

higher than the Fed would like, said Winograd.

"As a result of that, I expect them to signal next week some

caution and cut rates, but to indicate that they're not locked

into cutting rates every meeting, that they're going to have to

continue to watch the data and that they will eventually need to

see additional downward momentum in inflation," he said.

Traders see the Fed as likely to pause rate cuts in January.

The trajectory of rates then may depend on how quickly policies

by the new Trump administration are introduced, and when they

begin to be seen in the economic data.