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Investors shift from bonds to stocks amid rising risk

appetite

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Heavy government and corporate bond issuance pressures

Treasury

prices

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Yield curve steepens slightly as short-term yields rise

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 25 (Reuters) - U.S. Treasuries slid for a

second straight session on Wednesday, as risk appetite improved

with the bounce in stocks and investors braced for a heavy slate

of government and corporate ​issuance that prompted pre-supply

selling.

U.S. stocks climbed, lifting the S&P 500 and ‌Nasdaq to

two-week highs amid improving sentiment toward AI names.

Nvidia's ( NVDA ) earnings, set for release after the close,

have become the focal point even for bond investors seeking

evidence that its ⁠profit growth is keeping pace with Big Tech's

massive $630  billion capital spending plans for 2026.

"There is that sort of risk ⁠rotation into equities out of

bonds happening," said Chip Hughey, managing director of fixed

income at ‌Truist Wealth in Richmond, Virginia.

"That ‌traditional relationship (higher stocks and lower

Treasury prices) broke down in the past several years. But this

year, it has happened a lot more consistently."

Investors are again seeing ​bonds and stocks move in tandem,

in part because many expect the ‌Federal Reserve to keep interest

rates steady in the near term, pushing the Fed's influence

further into the background, Hughey noted.

HEAVY SUPPLY WEIGHS ON MARKET

The Treasury is also set to auction $70 billion in ​U.S.

five-year notes and some analysts expect a less smooth sale

given ​lower outright yields. ‌Since the last five-year note

auction in January, the yield has fallen by about 20 basis

points.

Analysts said investors were selling Treasuries ahead of the

five-year note sale so they could buy them back later at a ⁠lower

price.

The Treasury also sold $69 billion in 17-week bills and $28

billion in two-year floating rate notes.

There is also ample corporate ⁠bond supply this week,

analysts said, with roughly $49 billion in fresh investment

grade debt in the first two days alone. More deals are expected

amid a forecast of about $52 billion-$57 billion bond supply

this week, analysts said.

Wall Street dealers typically seek to lock in borrowing

costs when underwriting corporate bonds. To hedge against

interest rate fluctuations, they sell Treasuries ahead of the

bond issuance. Once the deal ⁠is completed, ‌they unwind the hedge

by buying back Treasuries - a process known as exiting the "rate

lock."

In late ‌morning trading, the benchmark 10-year yield was up

1.5 basis points (bps) at 4.048%, while 30-year

yields were flat on the day at ⁠4.693%.

On the front end of the curve, the two-year yield, which

reflects interest rate expectations, rose 1.3 bps to 3.469%

US2YT=RR.

The yield curve steepened a touch on Wednesday, with the gap

between two-year and 10-year yields rising to 57.5 bps

from 56.6 bps late on Tuesday.

Prior to Wednesday, the curve has flattened for 10 straight

sessions, a move in which short-term yields are higher than

those on longer-dated Treasuries.

"Since the January labor report (which showed an unexpected

surge), we have seen Fed rate cut expectations dialed back a bit

and that has contributed a little bit ​to the flattening with

with some upward pressure in short-dated yields," said Truist's

Hughey.

U.S. fed funds futures on Friday priced in about 53 bps on

easing this year, compared with 56 bps late on Tuesday. That's

equivalent to about two rate cuts of 25 ​bps each, an outlook

that has been in place since ‌the beginning of 2026. The first

rate cut is not expected until July or ​September.