By Elizabeth Stanton
Nov. 1 (Bloomberg) -- Treasuries rose after the two largest U.S. banks were downgraded by equity analysts, highlighting the potential for the financial fallout of the housing slump to slow economic growth.
Two-year notes led the rally the day after a Federal Reserve announcement indicating it doesn't anticipate lowering interest rates further triggered the securities' biggest decline since August. Citigroup Inc. and Bank of America Corp. had their stock ratings lowered by Morgan Stanley and CIBC World Markets.
Yields on two-year notes fell more than 9 basis points, or 0.09 percentage point, to 3.86 percent at 8:57 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 3 5/8 percent securities maturing in October 2009 fell 6/32, or $1.88 per $1,000 face amount, to 99 18/32. Yields move inversely to bond prices.
Treasuries remained higher after a government report showed the measure of inflation the Fed watches most closely was stable in October.
Fed policy makers lowered the target rate a quarter- percentage point to 4.5 percent yesterday. The reduction, ``combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,'' the Federal Open Market Committee said in a statement accompanying the decision.
At their previous meeting on Sept. 18, policy makers reduced the target rate by half-a-percentage point from 5.25 percent, citing the potential for the housing slump to damp economic growth.
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