From Japan to Germany to Australia, government borrowing costs fell to all-time lows as oil fell 10 per cent in just two days - Brent crude broke below the psychological $50 barrier - as investors wrestled with the risk of global deflation.
European stocks opened higher, after Asia just about managed to hold up in positive territory, but nervousness ran deep through all financial markets ahead of euro zone inflation data, which showed consumer prices in the 18-country Eurozone were 0.2 per cent lower in December than the previous year. The decline was bigger than anticipated. (Read full story)
But the ECB may be reluctant to act before Greece's general election on January 25, a vote which some observers say could hasten the country's exit from the euro zone if the left-wing Syriza party wins.
"Given the fact that Greece will not have an official government in place at that time, the ECB may have to wait," said Marshall Gittler, head of global FX strategy at IronFX.
"The euro has not been able to sustain any rallies this year and so looks chronically weak," he said.
The euro fell as low as $1.1842 in anticipation of more money-printing by the ECB. In early European trading, it was down slightly from the previous day around $1.1870.
The dollar fared better, bouncing to 119.15 yen from a low of 118.04 touched on Tuesday.
Yields going, going... gone?
The breakneck decline in oil showed no sign of letting up. Brent fell more than 2 per cent to dip below $50 a barrel for the first time since early 2009. It has shed more than 11 per cent so far this week. US crude fell to $47.02.
With fears of deflation rampant, yields on longer-dated Japanese, German, French, Dutch, Austrian, Belgian, Finnish, Canadian and Australian bonds all touched record lows.
Euro zone inflation expectations, measured by the ECB's preferred gauge of so-called 5-year forwards, fell to a fresh low of 1.58 per cent. That's well below the central bank's target of just under 2 per cent.
All yields on German bonds out to 5 year maturities were negative on Wednesday and the 10-year yield was 0.45 per cent. The benchmark US 10-year yield was steady at 1.959 per cent.
Investors also pushed back their expectations for the day when the Federal Reserve might be able to hike US interest rates. Fed fund futures: imply no chance of a hike by June and only one rise to 0.5 per cent by year-end.
Minutes of the Fed's last policy meeting are due later on Wednesday and should expand on where members felt rates were heading.
Even if the Fed sticks to its current timetable and moves around mid-year, markets are wagering it will be so far ahead of the curve that inflation will remain permanently low.
As a result, investors are willing to accept less compensation for inflation risk over time, so pulling down yields on even the longest dated bonds.
Yields on US 30-year paper fell to 2.51 per cent, above the all-time trough of 2.443 per cent hit on Tuesday.
Equity markets showed more life after a run of torrid sessions. Japan's Nikkei edged up 0.2 per cent and the MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.1 per cent.
The FTSEurofirst 300 index of leading shares was up 0.5 per cent, and the major US stock index futures pointed to a higher open of around 0.25 per cent on Wall Street.
That would break a run of five straight losing sessions, the longest losing streak since late 2013 for the S&P 500.
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