Stocks, Bonds Hit Hard

News from overseas also contributed to the yield spike, as expectations grew that the Bank of Japan will raise interest rates as soon as midyear.

A key reason the U.S. bond market has performed so well in recent years is that it has offered the highest return of debt markets worldwide. Moreover, the market has been fueled by the "carry trade" whereby investors borrowed money in Japan, which held its interest rates at 0%, and invested it in the U.S. for a higher return.

Matthew Smith, a portfolio manager at Smith Affiliated Capital, says concern about overseas tightening is overdone. "If you look at rates around the world, our [yields] are still near the highest," Smith said. The fed funds rate stands at 4.75%, the BoJ's key rate is at 0%, and the European Central Bank's rate is at 2.50%.

Sky-high commodities prices also took the wind out of stocks, even though gold backed away from $600 an ounce. Fed policymakers cited rising energy and commodities costs among the reasons they raised rates at the March 28 Federal Open Market Committee meeting.

Comex Gold futures ended the day down $7 to $592.70 an ounce. Before it pared losses at the end of the session, gold had been heading for its biggest one-day loss in a month

Silver eked out a 3-cent gain to end the day at $12.07 an ounce, just below the 22-year high hit earlier in the week.

Crude futures fell 55 cents to $67.39 a barrel on Nymex. The May contract had advanced in morning trading on concerns about dwindling gasoline inventories heading into the summer driving season. The front-month contract, which was trading below $62 as recently as two weeks ago, has been creeping toward its record intraday high at $70.85 reached last August.