SAN FRANCISCO - Fitch Ratings downgraded California's general obligation bonds two notches to BBB from A-minus yesterday, pushing the state's lease-backed debt to the lowest investment grade, BBB-minus.

Fitch kept the state's bonds on rating watch negative, suggesting the lease-backed debt may fall to junk bond status if a solution to California's budget impasse is not found soon. The agency downgraded the state to A-minus from A on June 25.

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