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By: Reuters | 18 Sep 2007 | 02:51 PM ET
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Treasury prices fell sharply Tuesday as investors celebrating the Federal Reserve's half-point cut in interest rates yanked their money out of bonds and shifted it to the stock market.

Treasurys initially rallied on the news of the cut in the federal funds rate to 4.75% from 5.25%, but they later came under pressure as investors, no longer wanting the safe haven of the government bond market, gleefully bought equities.

The Fed said the cut was needed to forestall adverse effects from the severe downturn in the housing and credit markets. The central bank also said tighter credit may cause further deterioration in the housing market.

It was the first rate reduction by the Fed in more than a year. And the aggressively large size of the cut may fuel investors hopes for more rate reductions.

The benchmark 10-year Treasury [US@?US10YY  Loading...      ()   ] was 18/32 lower at 101 23/32 with a yield of 4.54%, up from 4.49% yield before the news and 4.47% at Monday's close.

The two-year note [US@?US2YY  Loading...      ()   ] was 3/32 higher in price for a yield of 4.02%.

The Fed decision assumed more importance than usual this month because a summer of chaos in the housing and corporate credit markets convinced many investors that the broader economy is in danger and requires stimulation.

Copyright 2009 Reuters. Click for restrictions.
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