Ten-year notes declined earlier as some investors were disappointed the Fed chairman's remarks didn't include a discussion of the path of interest rates. The securities pared losses as Bernanke, responding to a question, said policy makers have "stated clearly" their pledge to keep the main interest rate low for an "extended period" contingent on conditions including high unemployment and low inflation.
"The main message Bernanke wanted to put forth is that the economy is continuing on its course toward an overall moderate recovery, although there are still headwinds," said Christopher Sullivan, who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union in New York. "The risk of inflation igniting serious concerns is just not there."
The 10-year note yield rose two basis points, or 0.02 percentage point, to 3.84 percent at 1:51 p.m. in New York, according to BGCantor Market Data. The yield earlier fell to 3.80 percent, near the lowest level since March 24, and gained as much as three basis points to 3.85 percent. The 3.625 percent security due February 2020 fell 5/32, or $1.56 cents per $1,000 face amount, to 98 1/4.
"On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters," Bernanke said to Congress. "Significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments."
U.S. central bankers, who next meet April 27-28, are debating how and when to pull back on record monetary stimulus as the economy recovers from the worst slump since the Great Depression. Policy makers have held the main lending rate at zero to 0.25 percent since December 2008.
"A subtle evolution is the way to describe Bernanke's description of the economy," Tony Crescenzi, market strategist and portfolio manager at Pacific Investment Management Co. in Newport Beach, California, wrote in a note to clients. "It is not enough to augur a change in monetary policy, but it is moving closer to the point where it will mean a language change." Pimco manages the world's largest bond fund.
Retail sales increased 1.6 percent last month, the most in four months, and gains for February and January were revised up, Commerce Department figures showed today in Washington.
Consumer prices rose 0.1 percent in March, in line with expectations, the Labor Department reported. Excluding food and fuel, the so-called core rate held steady after rising 0.1 percent in February.
"The bottom line is that inflation as measured by the government is going nowhere but down," Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York, wrote in a note to clients. "Incoming data continues to support the Fed's fear of near-term disinflation."
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, narrowed to 2.33 percentage points from this year's high of 2.49 percentage points in January. The five- year average is 2.15 percentage points.
'Back and Forth'
Fed Bank of Richmond President Jeffrey Lacker said the U.S. economy will probably expand at a moderate pace for the rest of this year as spending by consumers and businesses picks up.
The Labor Department's report on April 2 of 162,000 jobs added to payrolls in March was the "most encouraging sign" yet of a recovery, and the "risk of a pronounced decline in inflation has diminished substantially," Lacker said yesterday in a speech in Morgantown, West Virginia. He stopped short of endorsing any change to Fed monetary policy.
"The Fed has been moving back and forth between a very optimistic and a very guarded stance," said Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. "Those shifts aren't providing a good anchor to hold on to. The message for the rates market is that we will be volatile for a little while until all of the governors get on the same page."
--Editors: James Holloway, Gregory Storey