By Chris Reese (Reuters) – U.S. Treasuries fell on Wednesday after Federal Reserve Chairman Ben Bernanke outlined how the U.S. central bank would eventually reverse its loose monetary policy, and following a poor reception for the sale of benchmark notes.

Bernanke offered his most detailed description to date of how the Fed aims to dismantle the extensive emergency support facilities it put in place to bolster the economy, although he stressed it was not yet time for such measures. For details_see [ID:n10166741].

Longer-dated Treasuries extended losses after a poor reception in the sale of $25 billion of 10-year notes stirred concerns the appetite for huge waves of government debt may be dwindling. The notes sold at a higher yield than was expected, indicating investors were pushing for lower prices.

“It was a sloppy auction — it came at a higher yield than where they were talking,” said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle, adding “there’s some concern and I think that’s one of the reasons why you’re seeing yields rise in here and prices decline.”

The benchmark 10-year Treasury note US10YT=RR was trading 14/32 lower in price to yield 3.71 percent, up from 3.65 percent late on Tuesday, while the two-year note US2YT=RR was 3/32 lower to yield 0.89 percent from 0.84 percent.

Bernanke’s testimony set the bearish tone for bonds early in the day.

The Fed chairman said on Wednesday he expected to consider “before long” a “modest increase” in the gap between the discount rate and the fed funds rate.

Although he said changes to the discount window should be viewed as steps to normalize lending and not a change in the outlook for monetary policy or an effort to tighten financial conditions, the market took a more cautious view.

“Although I don’t think it was anything terribly new, just the whole exit strategy theme running through the market at a time when we’re trying to auction off debt is just weighing on the market,” said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.

Thirty-year bonds US30YT=RR briefly lost over a point in price following the 10-year note auction, then pulled back to trade 29/32 lower to yield 4.65 percent, up from 4.56 percent late on Tuesday. (Additional reporting by Ellis Mnyandu and Burton Frierson; Editing by Chizu Nomiyama)

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