ABC News reported that Flynn would testify that he was directed to make contact with the Russians by President Donald Trump. Flynn plead guilty to lying to the FBI.
The Dow Jones industrial average fell nearly 300 points immediately following the report. Investors made a quick pivot into safe havens like Treasurys as equities plunged.
Gold spiked higher about 1 percent following the news.
"I think that the downward tick [in Treasury yields] really comes from a pretty significant amount of uncertainty on Washington in general, what it could mean for tax reform and ultimately, what it could mean for the president himself," said Craig Bishop, vice president of U.S. fixed income at RBC Wealth Management. "There's going to be a lot of volatility."
Though Bishop noted that the Russian investigation is "getting closer to the White House," he did say it is too early to draw conclusions about how developments will affect President Trump directly.
Stocks ended the previous trading day on a high, with investors turning their attention to the state of U.S. tax reform.
In the latest surrounding the topic, Republican Senators Steve Daines, Ron Johnson and James Lankford all signaled support for the GOP tax plan Friday morning. The three senators had previously been uncertain on the legislation, but their newfound support left Republican leaders confident that they have enough support to pass the bill. A vote on the plan is expected Friday.
Senate Republicans had previously delayed voting on their tax bill on Thursday, as a setback concerning a fiscal "trigger" forced them to patch up the plan only hours before a planned final vote.
—CNBC's Jacob Pramuk contributed to this report