NEW YORK (CNNfn) - U.S. Treasury bonds rose Thursday as investors ran away from a plunging stock market into the safety of high-grade government debt.
The market started the day higher, boosted by news that Moody's Investors Service is considering lowering Japan's sovereign debt rating, a move that could trigger renewed flight-to-quality buying of U.S. bonds.
But the gains were erased around midday, when a rumor sprang up that the Federal Reserve and a U.S. broker were selling Treasury bills on behalf of an overseas central bank. The rumor, never confirmed, subsided by the afternoon and the stock market's tumble sent some buyers back to bonds.
The benchmark 30-year Treasury bond rose 12/32 of a point in price, lowering the yield to 5.65 percent.
Meanwhile, the dollar gained overnight, following the Moody's news, but was unable to sustain its climb in U.S. trading.
The greenback first fell off its highs when the bond market rumor came to life. Nervous investors speculated that the Bank of Japan was behind the rumored bond sales, stocking up on U.S. dollars which it could sell later for yen in an effort to boost the value of Japan's battered currency.
The dollar never recovered from its midday slump, as jittery investors opted to stay away from the market ahead of Friday's expected election of a new Japanese prime minister. Members of Tokyo's ruling Liberal Democratic Party vote to choose a new leader overnight, and the elected party head also will head Japan's next government.
In the end, the dollar closed at 141.25 yen, down from 141.80 at the start of U.S. trading, but up from Wednesday's close.
The U.S. currency fell against the German mark, finishing at 1.7847 marks, down from 1.7930 at the open.