(Recasts, updates yields, adds Treasury quarterly refunding and analyst comments) By Karen Pierog CHICAGO, Nov 1 (Reuters) - U.S. Treasury yields were mixed on Monday as the federal government disclosed an increased borrowing need this quarter, while the market looked ahead to the likely announcement by the Federal Reserve that it will commence tapering its asset purchases. The benchmark 10-year yield was last up 1.2 basis points at 1.568%. The U.S. Treasury said it plans to borrow $1.015 trillion in the fourth quarter, up from an August estimate of $703 billion, due to having a lower balance at the beginning of the quarter. "When you see these borrowing numbers revised up quite a bit higher than they were in the previous estimate, the knee-jerk reaction is auction sizes are not going to be cut as much," said Tom Simons, money market economist at Jefferies in New York, adding that "those concerns are largely misplaced". He said there was still a consensus that the Treasury, which will announce upcoming debt auction sizes on Wednesday, will be reducing some, particularly for the 20-year bond, which is yielding more than the 30-year bond. "I would expect the (20-year bond) would trade better after the announcement that they"re cut. If they"re not cut, I would expect they would trade considerably worse," Simons said. He added that the increase in the Treasury"s borrowing estimate "reflects more optimism on how the debt ceiling is going to play out". After a two-year suspension of the U.S. debt limit expired in late July, Congress passed a stop-gap fix last month that pushed the deadline for the government to run out of cash to early December. FED IN FOCUS The market is focused on the Fed"s two-day meeting and Wednesday"s widely expected announcement that the central bank"s monthly $120 billion purchases of Treasuries and mortgage-backed securities will be reduced. The Fed has to walk a "a really fine line" amid inflation pressures, according to George Goncalves, head of U.S. macro strategy at MUFG in New York. "Can they afford to be dovish when everyone is so hyper sensitive on what central banks are doing to combat and fight inflation? On the flip side, they don"t want to add equal fuel to the fire to sell off rates even further and then maybe that eventually will matter for other asset classes," he said, noting that a potentially speeded-up tapering could push Treasury yields higher. On the data front, the Institute for Supply Management said manufacturing activity slowed in October. The two-year yield, which hit a 19-month peak last week, was last up 1 basis point at 0.5051%. The five-year yield, another part of the curve that is sensitive to Fed rate expectations, was last less than a basis point lower at 1.1864%. After flattening last week, a closely-watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last about 1 basis point steeper at 106.30 basis points. The spread between five-year notes and 30-year bonds also steepened, rising 3.10 basis points at 77.90 basis points. Inflation expectations remained below last week"s spike to the highest levels in more than a decade. The breakeven rate on five-year Treasury Inflation-Protected Securities (TIPS) was last at 2.84%. For 10-year TIPS, it was 2.5%. November 1 Monday 4:00PM New York / 2000 GMT Price Current Net Yield % Change (bps) Three-month bills 0.05 0.0507 -0.007 Six-month bills 0.065 0.0659 0.003 Two-year note 99-190/256 0.5051 0.010 Three-year note 99-146/256 0.7726 0.017 Five-year note 99-180/256 1.1864 -0.002 Seven-year note 99-126/256 1.4516 -0.002 10-year note 97-32/256 1.568 0.012 20-year bond 95-232/256 2.0015 0.011 30-year bond 100-164/256 1.9714 0.030 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 20.00 1.00 spread U.S. 3-year dollar swap 21.25 1.00 spread U.S. 5-year dollar swap 6.50 2.25 spread U.S. 10-year dollar swap 1.25 1.00 spread U.S. 30-year dollar swap -21.75 0.25 spread (Reporting by Karen Pierog; Editing by Kirsten Donovan)