03:53 PM EST, 01/20/2026 (MT Newswires) -- US equity indexes dropped ahead of Tuesday's close as concerns over a potential trade war with Europe intensified a surge in long-dated Treasury yields following a sell-off in Japanese government bonds.

The Nasdaq Composite plunged 2.5% to 22,936.1, with the S&P 500 diving 2.1% to 6,794.5 and the Dow Jones Industrial Average 1.7% lower at 48,487.3.

All but one sector, energy, declined. Consumer discretionary, technology, and industrials led the laggards.

"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 six basis points to 4.29%, while the 20- and 30-year yields rose 8.1 and 7.6 basis points, respectively.

The 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.

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.