US Equity Indexes Slump Amid Trump's Tariff Threats to European Allies, Bond Market Sell-Off in Japan

01:57 PM EST, 01/20/2026 (MT Newswires) -- US equity indexes fell midday Tuesday amid a surge in long-dated Treasury yields as concern mounted that a trade war with Europe over Greenland would undermine the US economy, and after a sell-off in Japanese government bonds.

The Nasdaq Composite dropped 1.9% to 23,072.2, with the S&P 500 down 1.6% to 6,826.2 and the Dow Jones Industrial Average 1.4% lower at 48,682.5. All but one sector, energy, declined. Consumer discretionary, technology, and industrials led the laggards.

Gold futures jumped 3.8% to $4,769.4 and silver futures soared 7% to $94.74.

The ICE US Dollar Index, which reflects the greenback's performance against a basket of the world's major currencies, sank 0.9% to 98.49.

"There appeared to be two triggers" behind the market moves, according to a Tuesday note from the Wells Fargo Investment Institute. "Japanese government bonds began the selloff, and the bond market weakness seemed to escalate with US-Europe political tensions over the tariff threats connected to the US bid for control of Greenland."

The US 10-year Treasury yield jumped 4.8 basis points to 4.28%, and the 20- and 30-year yields rose 6.6 basis points and 6.1 basis points, respectively.

The Japanese 10-year government bond yields closed 10.5 basis points higher at 2.38% on Tuesday. The 20- and 30-year catapulted 21.8 basis points and 27.5 basis points, respectively.

The US yields were pressured by Japan, which witnessed a "huge" sell-off overnight Monday in super-long Japanese government bonds, according to an MUFG note. This followed an acknowledgement from Japanese Prime Minister Sanae Takaichi that her Liberal Democratic Party would include a sales tax cut on food for up to two years ahead of a likely snap election.

Higher Japanese yields mean a narrower spread with US Treasuries, reducing the appeal of yen-funded carry trades that have been soaking up US government debt.

On Saturday, President Donald Trump announced the US would impose a 10% tariff on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland, effective Feb. 1, and increase the duties to 25% starting in June if the matter remains unresolved. "This tariff will be due and payable until such time as a deal is reached for the complete and total purchase of Greenland," Trump said in a social media post.

In response, the European Union is considering up to $108 billion in retaliatory tariffs on US goods, according to several media outlets.

"If the US carries out its threat and imposes an additional 25% tariff on European countries, and if there's like-for-like retaliation, it would lower US (gross domestic product) by 1% relative to our baseline at peak impact," Oxford Economics said in remarks emailed to MT Newswires on Monday.

Goldman Sachs, however, said in a note on Monday that "it remains highly uncertain, in our view, whether these tariffs will be implemented."

Along similar lines, the Wells Fargo note added: "Since April 2025, we have seen repeated tariff threats and counter-threats that ultimately have proven to be the opening bids in negotiations that have brought compromise."

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