NEW YORK (CNN/Money) - Treasury prices rallied Tuesday after Federal Reserve Chairman nominee Ben Bernanke said he would carry on the policies of current Fed chief Alan Greenspan.

The bond market got a small boost from a relatively mild reading on inflation at the wholesale level, excluding food and energy costs, that came early in the session, but Treasury prices took off after Bernanke began his testimony on Capitol Hill.

The benchmark 10-year note added 12/32 to 99-16/32 to yield 4.56 percent, down from 4.61 late Monday. The 30-year bond jumped 25/32 to 109-4/32 to yield 4.74 percent, down from 4.80 late Monday. Bond prices and yields move in opposite directions.

In shorter-dated debt, the two-year note rose two ticks, yielding 4.46 percent. The five-year note was up 6/32, yielding 4.50 percent.

In testimony before the Senate Banking Committee, Bernanke said he was convinced that stable prices are the best way to keep economic growth strong, and that it's important to low- and middle-income Americans that the Fed stay vigilant on inflation, which can hurt bonds as inflation erodes the value of the fixed-income investment.

"He's not saying anything that would suggest we're going off on a different tangent. In that regard there's a little bit of relief buying going on," Kevin Flanagan, a fixed-income strategist at Morgan Stanley in White Plains, N.Y., told Reuters.

The Federal Reserve's 16-month credit-tightening campaign, taking the central bank's key short-term interest rate to 4 percent from 1 percent, has drawn more investors to the dollar and Treasury bonds. Several economists see the fed funds rate, an overnight bank-lending rate, rising to at least 4.5 percent next year.

In economic news, the Commerce Department reported that overall retail sales slipped 0.1 percent in October, compared with a revised 0.3 percent increase in September.

A sharp drop in sales of automobiles combined with a pullback in sales at the gasoline stations to deliver the soft headline number.

The Producer Price Index rose 0.7 percent in October as surging costs of natural gas and home-heating oil outweighed cheaper gasoline, but prices outside of food and energy ticked lower, a government report showed Tuesday.

The so-called core PPI, which excludes food and energy prices, posted a 0.3 percent decline, compared with a 0.2 percent rise in September. The core prices are more closely followed by the Fed and many economists, and the drop in the core helped take Treasury prices higher and the yield on the 10-year note lower.

In currency trading, the dollar pared some gains against the euro and yen. The euro bought $1.1721, up from $1.1691 late Monday. The dollar bought ¥118.82, down from ¥118.90 in the previous session.

-- from staff and wire reports

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