Thirty-day Treasury bills jumped to 0.355 percent Tuesday, as investors balked at buying notes that may go into default if Democrats and Republicans cannot manage to raise the government's borrowing limit.
Much of the focus on Wall Street is on Washington, where a budget impasse has shut down non-essential services and where suggestions of a compromise are few and far between.
On Wall Street, the Dow Jones industrial average gave up 159.71 points or 1.07 percent to close at 14,776.53. The Standard & Poor's 500 dropped 20.67 points or 1.23 percent, to 1,655.45. The Nasdaq lost 75.54 points or 2 percent to 3,694.83.
On the New York Stock Exchange, 589 issues advanced while 2,446 declined on volume of 3.5 billion shares.
The 10-year U.S. treasury note rose 5/32 to yield 2.631 percent.
In Japan, the Nikkei 225 index added 41.29 points, 0.3 percent, to 13,894.61.
In Britain, the London FTSE dropped 71.45 points or 1.11 percent to 6,365.83.
On currency markets, the euro rose to $1.3573 and the dollar rose to 96.88 yen.
Crude oil added 51 cents or 0.5 percent to $103.54 on the New York Mercantile Exchange. On the Comex division, gold lost $5.60 to $1,319.50 per troy ounce while silver shed 6.6 cents to $22.32.
On the Chicago Board of Trade, December corn lost 7 1/2 cents to reach $4.41 3/4 a bushel, November soybeans gave up 7 1/2 cent to $12.89 and December wheat shed 1 1/4 cents to $6.93 1/2.