We report the first polarization transfer measurements for exclusive hyperon production reactions. The normal spin transfer coefficient DNN for pp -> p K+ Lambda is large and negative for forward Lambda production at a beam momentum of 3.67 GeV/c, a result qualitatively consistent with expectations for a mechanism dominated by kaon-exchange and rescattering. The sign of DNN is opposite to that observed in the fragmentation regime for inclusive Lambda production at much higher energies.
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