NEW YORK (CNNMoney.com) -- Bond prices retreated Wednesday as investors braced themselves for another expected rate hike by the Federal Reserve and awaited hints about the future of the central bank's monetary tightening campaign.

The dollar gained against the euro and the yen.

The 10-year note fell 11/32 to 99-1/32, yielding 5.25 percent, up from 5.20 percent late Tuesday.

The yield on the 10-year note remains below the yield of the two-year note. Yield curve inversions in the past have been interpreted as a possible sign of impending recession, but that is now considered less reliable since the curve has inverted on and off over the past 11 months. Many economists now say an inversion is more a harbinger of slowing economic growth.

The 30-year bond fell 22/32 to 88-08/32, yielding 5.28 percent, up from 5.23 percent the previous session. Bond prices and yields move in opposite directions.

The five-year note fell 6/32, yielding 5.24 percent, while the two-year note fell three ticks, yielding 5.28 percent.

Treasurys declined as the Fed kicked off its two-day FOMC meeting Wednesday afternoon, where policymakers are widely expected to institute its 17th-straight quarter percentage point rate hike.

The central bank is scheduled to announce its decision around 2:15 p.m. on Thursday.

Market observers however, will be paying particularly close attention to the accompanying Fed statement for hints about whether the central bank will maintain its monetary tightening campaign when it meets again in August.

Futures currently show an 86 percent chance that Fed will raise again in August, Reuters reported.

Treasurys barely reacted to an earlier auction of $14 billion in new five-year notes, which attracted moderate interest but had the lowest indirect bid interest in three years.

In other economic news, the Mortgage Bankers Association said U.S. mortgage applications fell nearly 7 percent last week, as the 30-year mortgage rate hit a four-year high. (Full story)

In currency trading, the euro bought $1.2552, down from $1.2581 Tuesday. The dollar traded at ¥116.43, up from ¥116.28 in the previous session.

--from staff and wire reports

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