U.S. Treasury notes gained, pushing two-year yields to the lowest since April

2004, on speculation the Federal Reserve will keep cutting interest rates to avert

a recession in the world's largest economy. Benchmark 10-year yields dropped to

the lowest since June 2003 as European stocks and futures on U.S. stock

indexes declined, prompting investors to seek safety in government debt. The

Fed's decision yesterday to slash the target for overnight loans between banks to

3.5 percent pushed notes to the biggest rally since the aftermath of the Sept. 11,

2001, terrorist attacks. The two-year Treasury yield fell 13 basis points to 1.85

percent as of 9:15 a.m. in New York. The price of the 3 1/4 percent security due

December 2009 rose about 1/4 to 102 21/32. Benchmark 30-year yields touched

4.101 percent. Ten-year note yields dropped 11 basis points to 3.3 percent. Twoyear

notes yielded 1.45 percentage points less than 10-year securities. The

steeper yield curve indicates investors favor shorter-maturity debt in anticipation

of lower interest rates.