The Dow Jones Industrial Average lost 193 points, or 0.78 percent, to 24,706.41. The S&P 500 erased 18.68 points, or 0.68 percent, to 2,711.45. The Nasdaq Composite Index was down 59.69 points, or 0.81 percent, to 7,351.63.
The benchmark 10-year Treasury yield hit 3.09 percent on Tuesday, its highest level since 2011.
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 probability that the U.S. central bank will raise its benchmark rate a fourth time this year went above 50 percent for the first time, according to the CME's FedWatch tracking tool for the fed funds futures market.
Analysts said investors also worried that the climbing borrowing costs may slow the economy. A move in the yield above 2.9 percent earlier this year triggered a correction for U.S. equities.
On the economic front, advance estimates of U.S. retail and food services sales for April were 497.6 billion U.S. dollars, an increase of 0.3 percent from the previous month, in line with market expectations, said U.S. Commerce Department on Tuesday.