NEW YORK (CNNMoney.com) - Treasury debt prices closed lower Friday as the rally in the newly issued 30-year bond fizzled, and dealers looked ahead to potentially hawkish testimony from new Federal Reserve chairman Ben Bernanke.

Bernanke will testify before Congress on Wednesday and Thursday about the state of the economy, giving traders a first glance into the views of the new top central banker.

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In recent days, the market has become more convinced that Bernanke's comments will be bearish for bonds, and will set the tone for additional interest rate increases in the coming months by the Fed.

The dollar fell against the yen on signs that Japan may soon start raising interest rates.

The 30-year bond declined 26/32 to 99-1/32, yielding 4.56 percent, up from a high yield of 4.53 percent at Thursday's auction. The benchmark 10-year note declined 10/32 to 99-9/32 to yield 4.59 percent, up from 4.55 percent in the previous session. Debt prices and yields move in opposite directions.

The two-year note declined two ticks, yielding 4.69 percent. The five-year note slipped 6/32, yielding 4.59 percent.

Earlier in the day, debt prices had gained across the board as traders kept celebrating the heavy interest generated by the Treasury's Thursday auction of $14 billion in 30-year bonds.

The midday sell-off was also linked to speculation across financial markets that China might revalue its currency in coming weeks.

China manages the value of its currency by selling yuan for dollars. Any revaluation means it would be buying fewer dollars and therefore have less need to park those dollars in safe assets like U.S. Treasuries.

"There were rumors China may revalue its currency in March. Based on that rumor, people are assuming China may buy fewer Treasuries," said Frank Hsu, director of global fixed income at Fimat. "And then the market broke certain support levels."

Treasurys were little moved by a report released Friday that showed the trade deficit widened more than expected in December. The Commerce Department said U.S. imports outstripped exports by $65.7 billion in December, up from the revised $64.7 billion in November. (Full story.)

Yields on two-year notes, which reflect market expectations the Federal Reserve is on track to raise short-term interest rates once and perhaps twice more, are higher than every other longer-dated maturity on the yield curve. Only one- and three-month bills are now yielding less than two-year notes.

But many traders and strategists are skeptical that this inversion is sending ominous signals about the economy.

They argue that the appetite for longer-dated bonds around the world from pension funds looking to match investments with the investment needs of growing numbers of retirees has distorted relationships between short- and long-term yields.

Fed officials lean toward this view, saying they reckon the economy remains robust and signaling that as long as the data continue to tell this tale, further interest rate hikes aimed at controlling inflationary pressures are possible.

In currency trading, the dollar sank against the yen as upbeat economic data coming out of Japan supported the view that a shift in the Bank of Japan's loose monetary policy is imminent.

The dollar traded at ¥117.74, down from ¥118.88 late Thursday. The euro bought $1.1952, down slightly from $1.1970 the previous session.

-- from staff and wire reports

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