NEW YORK (CNNMoney.com) - The dollar gained ground and bonds initially slipped but ended mixed Wednesday after new Federal Reserve Chairman Ben Bernanke warned of possible inflation risks if the Fed did not take necessary action.

Bernanke's congressional testimony -- his first public remarks since taking over the Fed -- reinforced views in the market that the Fed is likely to raise official short-term interest rates again after its next policy meeting in late March.

Inflation risks discourage investments in bonds because rising prices erode the value of fixed-income assets.

The dollar bought ¥117.90, up from ¥117.40 late Tuesday. The euro bought $1.1885, down from $1.1918 in the previous session.

The benchmark 10-year note rose 2/32 to 99-5/32 to yield 4.60 percent, down from 4.61 percent late Tuesday.

The 30-year bond gained 9/32 to 98-26/32, yielding 4.57 percent, down from 4.59 in the previous session. Bond prices and yields move in opposite directions.

The two-year declined one tick, yielding 4.70 percent, while the five-year note also gained a notch to yield 4.61 percent.

Wednesday's action left the so-called yield curve inversion -- when short-term yields are higher than long-term yields -- even steeper than it was before Bernanke's appearance before the House Financial Services Committee.

Investors are usually compensated for holding debt for a longer period of time by earning a higher yield than they are on short-dated debt. But their willingness to accept lower long-term yields can suggest they see signs the economy is weakening, and expect yields to go even lower.

"Bernanke has pretty much said what the bond market had been anticipating," said Mary Ann Hurley, a bond trader with D.A. Davidson & Co. in Seattle, explaining the market's mild reaction to Bernanke's first public remarks.

In prepared remarks seen as foreshadowing further rate hikes, Bernanke said: "... the risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately -- in the absence of countervailing monetary policy action -- to further upward pressure on inflation."

Financial markets expect the U.S. central bank to raise official short-term interest rates at its next policy meeting at the end of March by a quarter-point to 4.75 percent from 4.50 percent currently. They also see a 90-percent chance of the federal funds rate reaching 5.00 percent by mid-year.

The Fed began raising the fed funds rate in June 2004, when it was 1.00 percent, the lowest since the mid-1950s.

In the past, yield curve inversions have signaled economic slowdowns or even recessions, but Bernanke put himself clearly in the camp of those who see this inversion differently.

-- from staff and wire reports

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