US Equity Indexes Plunge as Trump's Tariff Threats Worsen Sell-Off in Treasuries

05:02 PM EST, 01/20/2026 (MT Newswires) -- US equity indexes sank on Tuesday after trade war worries with Europe intensified the move up in long-dated Treasury yields following a sell-off in government bonds in Japan, the largest holder of US government debt.

The Nasdaq Composite plunged 2.4% to 22,954.32, with the S&P 500 diving 2.1% to 6,796.86 and the Dow Jones Industrial Average 1.8% lower at 48,488.59.

"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 6.4 basis points to 4.29%, while the 20- and 30-year yields rose 8.8 and 8.1 basis points, respectively.

Japanese 10-year government bond yields soared 10.5 basis points to 2.38%. 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 a note from Mitsubishi UFJ Financial Group. 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. Japan is the largest holder of US government bonds, at $1.2 trillion, according to a note from Stifel. An increase in Treasury yields driven by factors outside the control of US monetary policy is problematic for the Federal Reserve and the Trump administration, as it undermines the impact of the easing currently being applied to support the economy.

All but one sector, energy, retreated at the close. Technology, consumer discretionary, and communication services were among the worst performers, implying high-growth sectors bore the brunt of the broad-based decline.

President Donald Trump threatened new tariffs on key European allies that oppose the sale of Greenland to Washington. On Saturday, Trump said that the US will impose 10% tariffs on eight European nations, including Denmark, France, Germany, and the UK, effective Feb. 1. These duties will increase to 25% in June.

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.

Gold futures jumped 3.7% to $4,765.5 and silver futures soared 6.7% to $94.46.

The ICE US Dollar Index, which reflects the greenback's performance against a basket of the world's major currencies, sank 0.8% to 98.56.

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