LONDON Oil prices were anchored near five-year lows and Germany’s benchmark government bond yield fell to a record low on Wednesday as concerns over Greece’s political and financial prospects spurred demand for safety.
Greek stocks and bonds fell, with short-term yields rising above long-term yields, ahead of next week’s presidential vote, pushing the borrowing costs of all peripheral euro zone governments higher.
European stocks were largely shielded from the Greek fallout, recovering from the previous day’s selloff after a similar rebound in Chinese shares prompted by hopes that weak inflation will bring more monetary policy easing in China.
U.S. stock futures, however, pointed to a slightly lower open on Wall Street.
“European equities have stabilised following yesterday’s weakness, although Greek equities continue to sell off and peripheral (bond yield) spreads widened further as Greek snap elections renewed concerns,” Barclays said.
At 1220 GMT Britain’s FTSE 100 was up 0.2 percent at 6,542 points, Germany’s DAX was up 0.9 percent at 9,876 points and France’s CAC 40 was 0.5 percent higher at 4,286 points.
The broader FTSEuroFirst 300 index of leading European shares was 0.5 percent higher at 1,369 points.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3 percent, but was off lows as Chinese shares closed up 2.9 percent. On Tuesday, the Shanghai index rose to a 3-1/2-year high before tumbling more than five percent.
Data on Wednesday showed China’s annual consumer inflation fell to a five-year low of 1.4 percent in November, signalling persistent weakness in the world’s second largest economy.
Japan’s Nikkei stock average tumbled 2.3 percent as a stronger yen prompted investors to sell exporters’ shares.
The dollar was down a third of one percent at 119.27 yen, more than two yen off Friday’s seven-year high of 121.83 yen, and the euro was steady at $1.2372.
The focus for investors in Europe was firmly on Greece, where short-term yields shot above long-term yields. This yield curve inversion often indicates a country is about to default or fall into recession.
Greek Prime Minister Antonis Samaras has brought forward to this month a vote on a new president, a gamble that could backfire by triggering an early parliamentary election and catapulting the leftist anti-bailout Syriza party to power.
Three-year Greek bond yields shot up 130 basis points to 9.52 percent, the highest level since the bonds were issued back in July and also above 10-year yields, which rose 53 basis points to 8.59 percent.
“This inversion tells you that there are concerns about further potential debt writedowns and that is a function of minds being focused on Syriza, which would no doubt push hard for such a policy,” said Rabobank strategist Lyn Graham-Taylor.
Investors flocked to the safety and liquidity of German government bonds, pushing the 10-year yield to a new low of 0.679 percent. Yields on Portuguese, Spanish and Italian bonds all rose.
Greek stocks fell as much as 4 percent earlier but by midday had recovered to trade down 1.5 percent. On Tuesday, they fell 12.7 percent, their biggest one-day fall since 1987.
Front month Brent crude oil futures were down 1.6 percent at $65.78 a barrel, barely 50 cents above Tuesday’s five-year low of $65.29.
Adding to pressure on crude prices, the Organization of the Petroleum Exporting Countries (OPEC) cut its 2015 forecast of global demand for the group’s oil by 280,000 barrels a day to 28.92 million barrels per day, down from its previous forecast.
Low oil prices, weak global inflation and the political developments in Greece supported demand for safe-haven U.S. Treasuries. The yield on benchmark 10-year notes stood at 2.218 percent in Asian trade, down slightly from its U.S. close of 2.220 percent on Tuesday.
Spot gold rose to a seven-week high earlier in the day of $1,238.20 an ounce before slipping back to $1,226.