Rush for safe havens as euro fears rise

US benchmark borrowing costs plunged to levels last seen in 1946 and those for Germany and the UK hit all-time lows as investors took fright at what they see as a disjointed policy response to the debt crisis in Spain and Italy. In a striking sign of the flight to haven assets, German two-year bond yields fell to zero for the first time, below the equivalent rate for Japan, meaning investors are willing to lend to Berlin for no return. US 10-year yields fell as low as 1.62 per cent, a level last reached in March 1946, according to Global Financial Data. German benchmark yields reached 1.26 per cent while Denmark's came close to breaching the 1 per cent level, hitting 1.09 per cent. UK rates fell to 1.64 per cent, the lowest since records for benchmark borrowing costs began in 1703. "They are extreme levels because we are in an extremely perilous situation. People just want to put their money somewhere where they think they will get it back. People may soon be paying Germany or the US to look after their money," said Gary Jenkins, head of Swordfish Research, an independent credit analysis company. The flight to safety came as the situation in Italy and Spain, the eurozone's third- and fourth-largest economies, deteriorated further. Italy held a disappointing debt auction and saw its benchmark borrowing costs rise above 6 per cent for the first time since January. The euro fell 0.8 per cent against the dollar to under $1.24 for the first time in two years. Confusion over how the Spanish government's rescue of Bankia, the stricken lender, will be structured led the premium Madrid pays over Berlin to borrow to hit fresh highs for the euro era at 540 basis points. Analysts said the elevated level meant that clearing houses could soon raise the amount of margin, or collateral, that traders need to post against Spanish debt, a move that led to the escalation of crises in Portugal and Ireland. The European Central Bank has made clear to Spain that it cannot use the bank's liquidity operations as part of a recapitalision of Bankia. However, the central bank said on Wednesday it had not been officially consulted on the plans. Equity markets globally fell on the eurozone fears with bourses in Paris, Frankfurt and London all dropping 2 per cent. But Nick Gartside, international chief investment officer for JPMorgan Asset Management, noted that while US bond yields had halved since April last year the S&P 500 equity market was at the same level. "One of those two markets is mispriced. Core government bonds are an efficient market and they are ahead," he added. Investors said borrowing costs for the US, UK and Germany were likely to continue to fall amid a worsening economic backdrop and the threat of more central bank intervention. Wealth managers have been moving client assets into currency havens in recent weeks, with the Swiss franc and the US dollar among the biggest beneficiaries "Risk aversion, a rapidly slowing global economy and unusually low policy rates will pin these short and intermediate maturity bonds at unprecedented low levels for quite a while," said Mohamed El-Erian, chief executive of Pimco, one of the world's largest bond investors. Mr Gartside said he could easily see German rates going below 1 per cent, following a path that only Japan and Switzerland have taken among major economies, while the US and UK could dip under 1.5 per cent. Markets are increasingly resigned to more turmoil until policy makers take more radical action. The two most popular plans of action for investors are for the ECB to buy Spanish and Italian bonds in unlimited size or for eurozone countries to agree on a fiscal union involving the pooling of debt. "You have to throw everything at it. Spain is just too big for half measures. The next intervention has to be not just massive in size but it has to show a total commitment," said Mr Jenkins. He recommends that the ECB set targets either for the premium Spain and Italy pay to borrow over Germany or for their yields.

Euro break-up 'could wipe 50pc off London house prices'

Property prices in the capital’s most sought-after postcodes have been driven up by investors moving funds out of assets held in euros to buy into what is seen as a “safe haven” alternative. Foreign money seeking a refuge from the wider economic turmoil accounted for 60pc of acquisitions of prime central London property between 2007 and 2011, according to a report by Fathom Consulting for Development Securities. If the shared currency broke up completely, London property would initially be boosted by the continued flight towards a safe haven, the report predicts. But, once the break-up had taken place, demand for these assets as an insurance against this event would start to ebb. “Although fears about a messy end to the euro debt crisis may account for much of the gain in prime central London (PCL) prices that has taken place over the past two years, we find that a break-up of the single currency area is also the single greatest threat to PCL,” said researchers.

120 schoolgirls poisoned in Afghanistan

120 schoolgirls and three teachers have been poisoned in Afghanistan, local police reported on Wednesday. The attack has been blamed on Taliban. The incident in the northern Takhar province is the second in several months. The attack appeared aimed at shutting down schools educating girls and women, which radicals deem inappropriate. Perpetrators reportedly used an unidentified toxic powder to contaminate the air in classrooms. Police say evidence suggests that the substance was sprayed. The poisoning left dozens of Bibi Haji school students unconscious. Last month a similar poisoning attack in Takhar province affected 150 schoolgirls, who drank contaminated water. Afghanistan's intelligence agency, the National Directorate of Security (NDS), says the Taliban is behind such attacks and appears intent on closing schools ahead of a 2014 withdrawal by the NATO-led coalition. "A part of their Al Farooq spring offensive operation is … to close schools. By poisoning girls they want to create fear. They try to make families not send their children to school," NDS spokesman Lutfullah Mashal said as cited by Reuters. Afghanistan's Ministry of Education said last week that 550 schools in 11 provinces where the Taliban have strong support had been closed down by insurgents. Education was forbidden for women in Afghanistan after the Taliban took control of the country in the wake of the Soviet withdrawal. After the country was conquered by the US and its allies in 2001, females were allowed into school again. But both students and teachers fall victim to radicals’ attacks, especially in the more conservative provinces of the country.

Speculation over 'killing' of Assad brother-in-law

Speculation was rife on Wednesday among Syrian anti-regime activists over the alleged "killing" of President Bashar al-Assad's brother-in-law who is also Syria's deputy defence minister. Assef Shawkat, former head of military intelligence, was poisoned, according to anti-regime activists. The authorities in Damascus could not be reached for comment and have not responded publicly to the claim. According to anti-regime activists, Shawkat was being buried on Wednesday in his hometown, which they identified as Madhale, near the Mediterranean coastal city of Tartous. Several activists quoted by Saudi-owned Al-Arabiya television said black flags were flying in Madhale in mourning. On their Syrian Revolution Facebook page, online anti-regime activists wrote that: "Assef Shawkat is being buried right now in his home town Madhale ... God curse him. He was poisoned." They said Shawkat's body was transported to a hospital near his hometown that was emptied of patients on Tuesday evening. Speculation over Shawkat's fate first emerged on May 20 when Al-Jazeera and Al-Arabiya television broadcast an amateur video showing a man claiming responsibility on behalf of a rebel group for killing six regime stalwarts. They included Shawkat, Interior Minister Mohammed al-Shaar, Defence Minister Daoud Rajha, national security chief Hisham Bakhtiar and Hassan Turkmeni, assistant to the vice president. Turkmeni appeared on state television this week to dismiss the reports, while Shaar denied them in a telephone interview, accusing Al-Jazeera and Al-Arabiya of "lies and slander." But Shawkat has not made any public appearance or personally denied the reports, though he rarely makes public statements. According to Peter Harling, an expert on Syria with the Brussels-based International Crisis Group, the reports are "essentially unconfirmed for now. "What is interesting is this story's success, regardless of its factual grounding," Harling told AFP. "A month ago, Syrians would not have believed, conveyed, invested in such news and it would not have spread. "The regime then appeared particularly strong. Now there is a sense that the armed opposition is on the offensive." A member of the inner circle of former Syrian president Hafez al-Assad and his son Bashar, Shawkat rose quickly through the ranks of power after he married the late leader's only daughter, Bushra, in the 1990s. But Shawkat's relations with the Assad clan were not always smooth. Bashar's powerful brother Maher al-Assad allegedly shot him in the stomach in 1999. The two men were named in leaked version of a preliminary UN report as possible suspects in the 2005 assassination of Lebanese ex-premier Rafiq Hariri.

Rogue Afghan police officers shoot dead two British troops

Two members of the British military were shot dead by Afghan policemen in the latest fatal instance of rogue elements in the country's forces turning their guns on their allies. The servicemen, a soldier in the 1st Battalion Welsh Guards and a RAF airman, were shot dead at a checkpoint at Lashkar Gah district in Helmand where they were providing security for a meeting with Afghan officials. The killings brought the number of UK deaths in the war to 414. The attacks came on the day Afghanistan took its next faltering step towards the exit of Western forces with the declaration of another series of regions passing under the security control of Hamid Karzai's government. But just hours before the announcement, Arsala Rahmani, an ex-Taliban official now involved in the peace process was shot dead in Kabul. The Afghan government and international forces said the murders were the vicious reactions of an insurgency which is fracturing, with more of its soldiers defecting under a "reconciliation programme" and morale supposedly fraying among its leadership, the "Quetta Shura", based in Pakistan. But the shootings by the Afghan police, a so-called "green on blue" attack will heighten foreboding among Western forces of an enemy within. Around 20 coalition troops have been shot dead in 2012 this year by erstwhile comrades, with the Taliban boasting of "sleepers" in the ranks. Examination of the circumstances of some deaths, however, show various reasons for the killings, not all of them political. But they have still been propaganda coups for the insurgents. The policemen opened fire with their AK-47 Kalashnikov rifles at Patrol Base Attal around 3 o'clock in the afternoon during what was described as a routine meeting. They were identified last night as Sarhad Mohammed, 20, from Deshu district in Nagarhar, and Sardar Wali, also 20, from the Helmand town of Musa Qala, which had changed hands between British and American forces and the Taliban several times in bloody clashes. Afghan officials say Sarhad Mohammed was the first to start shooting and was then himself killed by another Afghan policeman. Sardar Wali was wounded in the arm but managed to flee. Fareed Ahmed, a spokesman for the Helmand provincial police, said the men had been in the force for about a year and their behaviour had not aroused suspicion. British and other international troops are taking additional precautionary measures following a spate of similar lethal incidents. There is also more rigorous vetting, including biometric testing, for recruits seeking to join the Afghan forces. But there was no indication the two policemen had not been put through such scrutiny. Major Ian Lawrence, spokesman for Task Force Helmand, said: "The thoughts and condolences of everyone serving in the Task Force are with their families and friends." Defence Secretary Philip Hammond said: "British forces work alongside Afghan forces every day with thousands of contacts with them every day. This is a country that has an insurgency... sadly, occasionally, these events occur."