NEW YORK (Dow Jones) -Treasurys gained Monday, clawing their way back from last week’s steep losses, after U.S. Federal Reserve Chairman Ben Bernanke offered a sober assessment on the progress of the U.S. economic recovery.

Shorter-dated notes–the most sensitive to interest-rate moves by the Fed–lead the way, with the two-year yield some six-odd basis points lower than it was at Friday’s close. Bond prices move inversely to yields. Treasurys were hit hard Friday after a surprise jobs report, which showed the economy lost far fewer jobs than expected last month, leaving investors hopeful that the recovery was gaining steam. Bernanke’s remarks Monday tempered some of that enthusiasm.

In late trade, the two-year note was up 5/32 to yield 0.77%, the 10-year was up 13/32 to yield 3.44% and the long bond was 10/32 higher to yield 4.40%.

Bernanke’s comments, the first since last week’s jobs report, centered on the continued fragility of the labor market. The chairman said that while it is no longer contracting at the pace seen in 2008 and earlier this year, the job market remains weak. His broader view of the economic turnaround was no more cheerful. He noted some improvement in economic activity, but said there is still a ways to go before it’s clear whether the recovery will be self-sustaining.

Such comments are supportive of government bonds, which tend to thrive in times of economic hardship, when investors seek out the safest possible assets. The Fed Chairman’s cautious comments suggest the central bank is still a long ways from starting to raise its target rate off the zero range it’s held for the past year.

“The chairman left us in no doubt that he has little interest in tightening monetary policy in the near term,” said John Ryding, chief economist and a founding partner of RDQ Economics. Instead, “his greater fear is that the economy does not grow quickly enough to significantly reduce unemployment.”

Investors in futures markets Monday afternoon were actively revising earlier, more aggressive bets on Fed rate hikes following Friday’s data.

Eurodollar futures hit their highest prices of the day following Bernanke’s speech. The July 2010 fed-funds futures contract Monday reflected a 50% chance for a hike to 0.5% at the Fed’s late June meeting, down from 68% on Friday.

Nevertheless, Treasurys prices are still below levels prior to the employment data, which constituted the most encouraging feedback on the U.S. labor market since the start of the recession. Friday’s release tallied 11,000 job losses in November, the smallest drop since December 2007. Unemployment also fell, to 10%, raising hopes that rate may have peaked at 10.2% in October.

An employment trends report published early Monday added further encouragement to anticipation of a turnaround in the U.S. labor market. The Conference Board’s index rose to 90.8 last month from 89.2 in October, making November’s the highest reading in eight months.

Treasurys gains Monday came despite another hefty offering of new government debt this week. The government will kick off its latest round of auction Tuesday, selling $40 billion three-year notes. It will then sell $21 billion more of last month’s 10-year notes Wednesday, and $13 billion of last month’s 30-year bonds Thursday.

-By Deborah Lynn Blumberg, Dow Jones Newswires; 212-416-2206; deborah.blumberg@dowjones.com

-By Emily Barrett, Dow Jones Newswires; 212-416-2205; emily.barrett@dowjones.com

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