"The most visible impact of escalating verbal threats between North Korea and President Trump comes at the long end of the US Treasury curve", said Jim Vogel, interest rates strategist at FTN Financial in Memphis.
But the prospect of hefty losses on Wall Street stocks was averted when U.S. secretary of state Rex Tillerson said there was "no imminent threat of war" and that Americans could "sleep well at night".
The Dow Jones industrial average lost 204 points, or 0.9 percent, to 21,844.
Shane Oliver, head of investment strategy at AMP Capital in Sydney, said: "What has changed this time is that the scary threats and war of words between the United States and North Korea have intensified to the point that markets can't ignore it".
North Korea said it was completing plans to fire four intermediate - range missiles over Japan to land near the U.S. Pacific island territory of Guam.
"While not necessary unexpected - as the USA had to respond to threats made by North Korea that they will fire rockets due to land just off the coast of Guam soon - new comments by Trump propelled stocks lower".
A scary 'Annabelle' leads N. American box offices
That was bettered, though, by the $47,000-per-screen average of Neon's " Ingrid Goes West ", with Aubrey Plaza , on three screens. Feedback on the $15 million prequel was largely on the positive side, far stronger than notices for the 2014 original.
The Vix, a measure of how much volatility investors expect in stocks, jumped 34.8 per cent, the biggest increase since May. For the week, the index lost 1.5 percent.
Nvidia's quarterly revenue in its data center and automotive businesses missed estimates, dragging the chipmaker's shares down 8.6 percent.
The local currency was trading at 1,137.90 won against the United States dollar, down 2.70 won from the previous session's close.
The dollar extended losses against the yen to hit a new two-month low.
On Thursday, the CBOE Volatility Index, a barometer of expected near-term stock market volatility, closed at its highest since the USA presidential election.
However, bank stocks, including Goldman Sachs, Bank of America and Morgan Stanley, were down about 1 percent on the dimming prospects of another rate hike this year.
A new approach for North Korea's nuclear weapon threat
Trump expressed hope that the US would not have to use this "power", but remained confident in the strength of the country. The United States and North Korea have repeatedly exchanged hard-line rhetoric, as if to show no hesitation to go to war.
U.S. stock futures were 0.1 per cent lower on Friday. Additionally, China weighed in on the standoff, saying in an editorial in state-run Global Times that Beijing will intervene if the USA strikes first against North Korea.
"Trump's response was aggressive and that's why the market turned lower", said Ken Polcari, a director at O'Neil Securities. The Nasdaq composite lost 96 points, or 1.5 percent, to 6,256.
Global benchmark Brent LCOc1 was marginally lower at $51.88, after Thursday's 1.5 percent drop.
As of Friday, calendar second-quarter earnings have grown by 10.1 percent.
The Russell 2000 is down 39.78 points, or 2.8 percent. Brent crude, used to price global oils, rose 20 cents to $52.10 a barrel in London. Heating oil fell 1 cent to $1.63 a gallon.
MARKETS OVERSEAS: Major indexes in Europe were mixed. South Korea's Kospi fell 0.2 percent. Natural gas gained 2 cents to $2.82 per 1,000 cubic feet.
North Korea could be preparing for new SLBM launch: 38 North
Picture: ReutersDonald Trumps threats to unleash "fire and fury" on North Korea to take a $10 trillion hit on the USA economy. Satellite imagery of a submarine base show coverings have been suspended to obscure any activity from view.