The 10-year yield neared 3.1 percent, blowing through the 3 percent level, as a wave of selling propelled the yield through a key technical support. Wall Street's main stock indexes slumped, with investors concerned that rising bond yields would hurt stock valuations.
"The 0.69 level has now been and gone, as another (modest) lift in global dairy prices was overshadowed by solid United States data and 10-year Treasury yields easily pushing up over 3 percent", said Sharon Zollner, chief economist at ANZ Bank New Zealand.
The U.S. dollar rallied against a basket of major currencies on Tuesday to its highest since December, helped by a rise in U.S. Treasury yields and as data showed U.S. retail sales increased moderately in April.
A quicker pace of growth could fuel concerns about inflation that might prompt the Federal Reserve to increase interest rates at a quicker pace, investors and traders said.
The yield, a barometer for mortgage rates and other financial instruments, has jumped recently on signs of rising inflation, which sparked market speculation for more rate-hikes later this year.
The 10-year yield's rise marked its first significant move above 3 percent since breaching that level last month.
"It's taken some time to get through it and this is kind of that breakout day", said Willie Delwiche, investment strategist at Baird in Milwaukee.
The dollar index, tracking it against six major currencies, rose 0.69 percent, with the euro down 0.61 percent to $1.1852.
On Wall Street, the Dow Jones Industrial Average .DJI fell 193.00 points, or 0.78 percent, to 24,706.41, the S&P 500 .SPX lost 18.68 points, or 0.68 percent, to 2,711.45 and the Nasdaq Composite .IXIC dropped 59.69 points, or 0.81 percent, to 7,351.63.
After improved trade sentiment helped stocks on Monday, equities were again jostled by developments involving US-China talks.
Home Depot (HD.N) shares fell 1.6 percent after the home improvement chain missed Wall Street's sales forecast.
The U.S. dollar bought 110.33 Japanese yen, higher than 109.64 Japanese yen of the previous session.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.4 percent last month after an upwardly revised 0.5 percent increase in March.
The Norwegian crown rose 0.3 per cent versus the euro to 9.56 crowns after strong quarterly economic data raised expectations of a rate rise later this year. U.S. crude fell 0.07% to $70.91 a barrel and Brent was last at $78.94, up 0.91% on the day.