| LONDON, Sept 30
LONDON, Sept 30 German government bond yields
dropped back towards six-week lows on Friday, giving up
Thursday's oil-induced rise as concerns over the health of the
country's biggest lender resurfaced.
Deutsche Bank admitted it had an image problem with
investors after reports on Thursday that a number of hedge funds
had withdrawn cash from the bank, sending its U.S.-listed shares
to a record low.
The government has had to deny it is working on a rescue
plan for Deutsche and the bank's woes have crystallised concerns
about the country's financial sector where its second largest
lender Commerzbank announced plans to cut thousands of jobs.
Yields on Bunds - seen as a safe haven by investors - fell
to six-week lows this week, and despite a rise late on Thursday
after an oil output deal sparked expectations for higher
inflation, they fell back to those lows again on Friday.
"Markets are just getting to grips with the latest news
overnight on Deutsche which has made investors take risk off the
table," Rabobank strategist Lyn Graham-Taylor said.
"It doesn't matter whether the bank is in real trouble or
not, as long as people think it is, then it is bad news."
German 10-year bond yields fell 4 basis points
to minus 0.161 percent, matching a level struck on Tuesday,
which was the lowest since mid-August.
Strategists said euro zone inflation data, due at 0900 GMT,
which is expected to show a doubling of price growth on the year
to 0.4 percent, could put upward pressure on yields.
That could still put inflation well short of the ECBs target
of just under 2 percent but might be enough to prompt questions
about whether the ECB's ultra-loose monetary policy is, at last,
starting to work.
On the ratings front, Spain is set to be reviewed by
Standard & Poor's later on Friday, at the end of a week which
has seen ructions in its Socialist Party renew concerns about
political stability in the euro zone's fourth-biggest economy.
Strategists at Commerzbank said the firm may change the
stable outlook on the country's BBB+ rating to negative.
Spain's 10-year bond yields rose 1 basis points to 0.93
percent, as did yields in other low-rated bonds in
Greece, Portugal and Italy.
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(Editing by Louise Ireland)