NEW YORK -- U.S. government bond prices slipped Monday, extending Friday's losses, as investors fretted Federal Reserve Chairman Ben Bernanke might make hawkish comments when he testifies before Congress this week.
Investors are worried that Bernanke will talk tough on inflation during his two-day presentation of the central bank's semiannual monetary policy report, which starts Wednesday.
This follows hawkish comments last week by top Fed officials, including St. Louis Fed President William Poole who said core inflation above 2 percent was unacceptable and the central bank would have to take action if it remained at these levels.
"Generally the market is gearing up for Bernanke Wednesday. The thinking is that he will be hawkish in part because three members last week were hawkish with a similar theme," Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co. in New York.
In New York morning trade, benchmark 10-year Treasury notes were down 2/32 in price to yield 4.80 percent, compared to 4.79 percent late on Friday.
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Strategists saw technical support for the 10-year notes around 4.84 percent, followed by 4.89 percent — which was touched on January 29.
Apart from jitters ahead of Bernanke's testimony, the market was also being weighed down by supply after last week's $38 billion quarterly Treasury refunding and seasonal factors related to the Japanese fiscal year-end, strategists said.
Government bonds fell sharply Friday on a combination of profit-taking after racking up solid gains during the week, and on hawkish comments from the Fed officials.
"We put out a tactical sell signal on Friday morning -- the first day of the historically bearish seasonal period for bonds that lasts into early May," said William O'Donnell, head of U.S. interest rate strategy and research with UBS in Stamford, Connecticut.
Overnight flows were light, with Tokyo closed for a holiday, O'Donnell said.
But not all strategists agree on the impact of the Japanese fiscal year-end on Treasuries.
"Much would depend on the Bank of Japan meeting next week. If the Bank of Japan signals a hike or hikes unexpectedly there could be Treasury selling by the Japanese ahead of the fiscal year-end," said said Miller, Tabak & Co.'s Crescenzi.
Another factor weighing on Treasuries was the dollar's failure to rally against the yen after the G7 meeting.
"It's flat against the yen. Some were looking for a rally, which would have sparked some Asian buying," said Crescenzi.
There are no major economic data due for release during the session, but data on the federal budget for January may generate some interest. A Reuters survey forecast a $40 billion surplus in January, up from $21 billion previously.
"Though good news for bonds, it's already been incorporated into trading," wrote analysts at Action Economics in San Francisco.
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