Stock market selloff lifts Treasurys
Government bonds rise as investors seek security in reaction to Goldman's downgrades and the Fed's inflation turnaround.
NEW YORK (CNNMoney.com) -- Treasury prices rose and yields nose dived Thursday as the equity market sold off furiously, sending investors flocking to the perceived safety of the bond market.
The benchmark 10-year note rose 17/32 to 98 22/32, and its yield fell to 4.03% from 4.11% late Wednesday. The 30-year bond rose 22/32 to 96 11/32, and its yield dropped to 4.60% from 4.65% late Wednesday.
The 2-year note moved 10/32 higher to 100 13/32, and the yield declined to 2.66% from 2.82% late Wednesday. Bond prices and yields move in opposite directions.
Stocks sank, with the Dow industrials hitting its lowest level since September 2006, after Goldman Sachs (GS, Fortune 500) lowered its rating on U.S. brokerages. The investment bank said it downgraded the firms because of continued deterioration in the industry and the prospect of a lengthy recovery.
"The Goldman Sachs news is the tipping point for this market," said Michael Cheah, senior portfolio manager at AIG SunAmerica. "The news would not have had as much impact if the Federal Reserve suggested they'll cut rates at the first point of difficulty."
The Fed left its key short-term interest rate unchanged Wednesday at 2%, marking the first time in the nine months that it did not cut rates. The central bank also raised alarms about inflation.
"When the Fed is moving towards fighting inflation, that's not a good thing for the stock market," said Cheah. "It's a good thing for the bond market, however, because bond investors love doom and gloom."
The 2-year note tends to be the most sensitive to inflation measures and interest rate changes. Though the Fed did not raise rates, Cheah believes the central bank's change in sentiment should continue to push short-term bonds higher. 
