* Bund yields give up early falls as Deutsche shares recover
* Still on track for biggest monthly fall since June
* Irish 10-year bond yields fall to record low
* Portugal yields set for biggest monthly rise since June
(Recasts with late-day move in yields, adds Portugal)
By Dhara Ranasinghe and John Geddie
LONDON, Sept 30 Safe-haven German bond yields
gave up their falls on Friday as Deutsche Bank shares bounced
back from record lows, but remained on track to end September
with their biggest monthly falls since June.
Deutsche, Germany's biggest lender, has been engulfed by
crisis after being handed a demand for up to $14 billion earlier
in September from the U.S. authorities for misselling
As concerns about the bank's health resurfaced this week,
yields on Bunds - seen as a safe haven by investors - fell to
their lowest levels since mid-August and opened lower on Friday
after reports that a number of hedge funds had withdrawn cash
from the bank, sending its shares to record lows.
Deutsche's chief executive sought to reassure staff about
the future of the bank on Friday.
The bank's shares meanwhile surged about 6 percent just
before the market close after a media report said an agreement
with U.S. authorities over the alleged misselling of
mortgage-backed securities was being discussed.
That in turn led to a turnaround in bond markets, where
yields had spent much of the day lower.
"The move this morning was clearly Deutsche Bank based and
since then we've had a rethinking of those fears," said Sergio
Capaldi, fixed income strategist at Intesa SanPaolo.
By late trade, German 10-year bond yields were
at minus 0.12 percent, flat on the day. They had fallen 4 basis
points earlier to minus 0.161 percent, matching a level struck
on Tuesday, which was the lowest since mid-August.
Still, Bund yields were on track to end September with a
fall of almost 6 bps, the biggest monthly fall since June when
Britain's unexpected referendum result in favour of leaving the
European Union roiled global markets and saw a flight-to-safety.
"Valuations would justify higher yields, around 0 percent
say, but in the current environment there is a flight-to-safety
premium that is supporting Bunds," said Orlando Green, European
fixed income strategist at Credit Agricole.
Other euro zone bond yields also gave up earlier falls which
had pulled Ireland's 10-year bond yield to a record low of 0.312
With markets focused on Deutsche Bank there was little
immediate reaction to news that euro zone consumer prices grew
0.4 percent in September, twice as fast as in August.
That still puts inflation well short of the ECB's 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.
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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 fell 4 basis points to 0.88
Elsewhere, Portugal's 10-year bond yield was set to end
September with a rise of about 28 bps.
That would mark its biggest monthly increase since June last
year, reflecting growing concerns about the country's ratings
(Editing by Janet Lawrence)