TREASURIES-US bonds under pressure as risk appetite rises, supply pressures build ?

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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. (Reporting by Gertrude Chavez-Dreyfuss, editing by Andrei Khalip)