An uneasy calm settled on Asian markets on Wednesday as a brewing financial crisis in Russia and the rout in oil prices sent investors scurrying for the cover of top-rated bonds.
Yields on British, German and Japan sovereign debt had all hit record lows while long-dated U.S. yields reached their lowest since late 2012.
Asian share markets were mixed with Japan's Nikkei .N225 recouping 0.5 percent of its recent hefty losses. MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged up 0.2 percent from a nine-month trough.
The stakes were all the greater as the U.S. Federal Reserve's last policy meeting of the year could well see it drop a commitment to keeping rates low for a "considerable period".
That would be taken as a step toward raising interest rates, even as growth in the rest of the world sputters and falling commodity prices add to the danger of disinflation.
A new wrinkle was the risk of financial contagion spreading from Russia where an emergency hike in interest rates failed to stop the ruble's descent to new lows.
It was quoted around 68.00 to the dollar RUB=EBS having been as far as 80.00 at one stage on Tuesday as speculation mounted that Moscow will impose capital controls within the next few days.
The rush from risk tended to benefit the safe haven yen, with the dollar back at 116.79 JPY=having been atop 118.00 on Tuesday. The urge to close positions caused collateral damage to the dollar generally as investors had been very long of the currency in anticipation of further gains.
The euro was up at $1.2510 EUR= while the dollar index eased 0.2 percent to 87.935 .DXY.
A year-end dearth of liquidity was leading to wild moves in even the most staid of assets. The oil-exposed Norwegian crown NOK= for instance, hit an all time low by one measure after carving out the widest daily trading range since the global financial crisis.
"The combination of the rouble crisis and poor liquidity broadly resulted in a period of total dysfunction across global FX and rate markets on Tuesday," reported analysts at Citi.
On Wall Street, the Dow .DJI had shed early gains to end Tuesday down 0.65 percent, while the S&P 500 .SPX lost 0.85 percent and the Nasdaq .IXIC 1.24 percent.
THE GOOD AND THE BAD
Brent oil leaked another 18 cents to $59.83 a barrel LCOc1, while U.S. crude was down 53 cents at $55.40 CLc1.
On the face of it, the downward spiral in oil should be good news as it effectively acts as a tax cut for consumers world wide. JPMorgan estimates the boost to spending could add 0.4 percentage points to global growth over 2015.
But a halving of fuel costs is also a force for disinflation in a world where the supply of goods already exceeds demand.
Data out of the UK showed inflation had ebbed to its slowest in 12 years in November, arguing strongly against the need for early rate rises from the Bank of England.
The Fed still seems keen to start raising U.S. rates by mid-2015. However, with inflation still well below its 2 percent target and likely to dip further as fuel prices fall, investors are wagering that any hike will only add to the disinflationary impulse in the economy.
A key market measure of inflation expectations for the next five years USIL5YF5Y=R has been falling fast since August and hit new lows at 2.37 percent on Tuesday.
Likewise, yields on 30-year Treasury bonds US30YT=RR touched their lowest since late 2012 at 2.67 percent as investors priced out the risk of higher inflation.
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