Euro zone yields bounce off lows on Omicron relief

By Abhinav Ramnarayan

LONDON, Dec 7 (Reuters) - Euro zone bond yields bounced off recent lows as reassuring news on the likely severity of the Omicron coronavirus variant helped lift sentiment in markets around the world.

Though the emergence of the new variant has caused alarm worldwide and pushed yields lower across the major government bond markets, health officials in South Africa and the United States said cases have not been severe.

Reports in South Africa said Omicron cases there had only shown mild symptoms and the top U.S. infectious disease official, Anthony Fauci, told CNN "it does not look like there's a great degree of severity" so far.

Asian stocks rose sharply on the news, while oil rebounded by nearly 5%, another factor that put upward pressure on yields.

Euro zone government bond yields rose across the board, with Germany's 10-year Bund yield, the benchmark for the bloc, up 2.5 basis points (bps) at -0.363% at 0835 GMT, rising off a three-month low hit on Monday.

Other high grade euro zone bond yields, such as those of France and the Netherlands, were 2-4 bps higher on the day. ,

But analysts said the move could be short-lived.

"Good news relating to the severity of Omicron should be taken with a pinch of salt. Faster transmission could offset the benefits of milder symptoms," researchers at ING said in a note. "More broadly, it is still early days, even if markets are starting to display Omicron fatigue."

This was a sentiment echoed by several other analysts, some of whom pointed towards the fact that yields are still a good way off recent highs, with German 10-year yields still 30 bps below its October peak.

In addition to the news around Omicron, some European Central Bank officials have been talking of how persistent inflation is proving, thereby keeping investors guessing about the bank's future policy plans.

Euro zone inflation in 2022 will probably exceed the ECB's projection of 1.7% and stay above the central bank's target of 2% for the entire year, ECB policymaker Robert Holzmann said.

A key market gauge of long-term euro zone inflation expectations was at 1.8861% on Tuesday, off its recent lows of 1.8048%.

Markets are awaiting final gross domestic product (GDP) numbers for the euro zone as a whole at 1000 GMT. At the same time, German institute ZEW will release its survey of economic sentiment in the bloc's largest economy. (Reporting by Abhinav Ramnarayan Editing by Gareth Jones)