REUTERS
Asian share markets were scorched on Tuesday as stability concerns put a torch to European bank stocks and sent investors stampeding to only the safest of safe-haven assets, according to Reuters.
As fear overwhelmed greed, yields on longer-term Japanese bonds fell below zero for the first time, the yen surged to a 15-month peak and gold reached its most precious since June, Reuters wrote.
Japanese Finance Minister Taro Aso felt moved enough to warn the yen's rise was "rough,", something of an understatement as the Nikkei .N225 nosedived 5.4%.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.2%, with Australian shares hitting 2-1/2-year closing low, and would have been lower if not for holidays in many centres.
Spread-betters see another weak session in European shares, where German DAX .GDAX is seen falling 0.7% and Britain's FTSE .FTSE 0.5%.
S&P 500 e-mini futures ESc1 fell more than 1% at one point.
"Sentiment towards risk assets remained extremely bearish and price action reflected a market that may be capitulating," said Jo Masters, a senior economist at ANZ.
All of which magnified the stakes for U.S. Federal Reserve Chair Janet Yellen's testimony this week.
"She needs to come across as optimistic without being too hawkish and cautious without being negative," said Masters. "Hawkishness or dovishness could easily exacerbate the current sell-off, tightening financial conditions further."
Wall Street pared losses but still ended deep in the red. The Dow .DJI lost 1.1%, while the S&P 500 .SPX fell 1.42% and the Nasdaq .IXIC 1.82%.
The rout began in Europe on Monday, when the FTSEurofirst 300 .FTEU3 index shed 3.4% to its lowest since late 2013, led by a near 6% dive in the banking sector .SX7P.
Deutsche Bank (DBKGn.DE) alone sank 9.5% as concerns mounted about its ability to maintain bond payments. Late Monday, the German bank said it has "sufficient" reserves to make due payments this year on AT1 securities.
The cost of insuring bank debt against default also climbed to its highest since late 2013. Borrowing costs in Spain, Portugal and Italy jumped as investors demanded a fatter risk premium over safer German paper, where two-year yields hit record lows at minus 52 basis points.
"The 'fear factor' in markets has morphed from being about an emerging market hard-landing and collapsing oil prices to being about the extent of the slowdown in the developed world and the ability of central banks to reflate asset values yet again," analysts at Citi said in a note.
The Bank of Japan's recent shift to negative rates has fuelled concerns that ever-more exotic monetary policy is rapidly reaching the point of diminishing returns.
Yet murmurings about the risk of recession in the United States has also led investors to wager the Federal Reserve will have to slow, or suspend altogether, plans to normalise rates.