Omicron warnings push euro zone debt yields back down

·2 min read

By Dhara Ranasinghe

LONDON, Nov 30 (Reuters) - Sovereign bond yields across the euro area were broadly lower on Tuesday as warnings about the impact of the Omicron coronavirus variant renewed demand for safe-haven assets.

Drugmaker Moderna's CEO said COVID-19 vaccines were unlikely to be as effective against Omicron as they have been against the Delta version.

In prepared comments to be delivered later on Tuesday to U.S. lawmakers, and released already, Federal Reserve Chair Jerome Powell said the variant posed downside risks to the economy.

The yield on 10-year German Bunds -- regarded as one of the safest assets in the world -- dipped to its lowest in just over a week at -0.345% and was last down about 2 basis points on the day.

Most other benchmark 10-year yields in the euro zone fell by a similar amount, while U.S. 10-year Treasury yields tumbled 7.5 bps to around 1.45%.

The move in euro zone debt markets was modest in comparison, highlighting perhaps some caution among investors ahead of the flash euro zone November inflation data out later.

Data on Monday showed German consumer prices, harmonised to make them comparable with inflation data from other European Union countries, rose 6.0% year-on-year in November. That was the highest rate recorded since January 1997.

Inflation in the single currency bloc rose 4.1% year-on-year in October.

Michael Leister, head of interest rates strategy at Commerzbank, said inflation was likely to fall from next month onwards.

"More relevant, the speed of this decline will be crucial with regard to the ECB reaction," he said. "The impact of recent oil/commodity dynamics on the inflation profile at the start of 2022 is key."

The European Central Bank is likely to keep buying bonds through 2022 to boost the bloc's economy and could even resume pandemic emergency bond buys after they end in March, ECB Vice President Luis de Guindos told French newspaper Les Echos on Tuesday.

(Reporting by Dhara Ranasinghe; Editing by Ana Nicolaci da Costa)