NEW YORK (CNN/Money) - Bonds dropped Wednesday after initial comments from Fed Chairman Alan Greenspan suggested there would be no let-up in interest rate hikes and other indicators pointed to a growing economy.

The dollar was mixed.

Greenspan's comments hit longer-dated debt the hardest, with the benchmark 10-year note losing 15/32 of a point to 98-22/32 to yield 4.16 percent, up from 4.10 percent late Tuesday. The 30-year bond fell 19/32 of a point to 112-31/32 to yield 4.52 percent, up from 4.49 percent. Bond prices and yields move in opposite directions.

The five-year note lost 10/32 of a point to 98-23/32 to yield 3.78 percent, while the two-year fell 3/32 to 99-15/32, yielding 3.41 percent

The top central banker said the recent decline in long-term mortgage rates was hard to explain and that interest rates remained low by historical standards, killing hopes in the bond market that the Federal Reserve would slow the pace of interest rate hikes.

"Yes, Greenspan does admit the obvious, that the real federal funds rate has risen considerably, but he quickly concludes that the rate 'remains fairly low'," said Anthony Chan, senior economist with JPMorgan Fleming Asset Management. "This is Fed-speak for the notion that the Fed will continue to raise rates by a quarter percentage point...as far as the eye can see."

Traders will continue to closely watch Greenspan's two days of testimony before Congress, which began Wednesday morning, scrutinizing his comments about current account stabilization, interest rates and plans for Social Security.

A better-than-expected new home construction report also pressured bonds. The Commerce Department said housing starts rose to the highest level in nearly 21 years in January, coming in at a better-than-forecast 2.16 million annual rate and up from a revised 2.06 million rate in December.

Economists surveyed by Briefing.com had forecast housing starts would slow to a 1.93 million pace.

The positive housing starts report and Greenspan's apparent willingness to let interest rates climb, combined with Tuesday's strong retail sales release, indicate the possibility of rising inflation, which erodes the value of the fixed interest paying bond.

In currency trading, the dollar gained on the yen but lost to the euro.

The euro bought $1.3025 up from $1.3019 late Tuesday, while the dollar bought ¥105.43, up from ¥104.39.

The yen suffered after Japan said its economy contracted for a third straight quarter, sending the country into its fourth recession in less than a decade.