By Abhinav Ramnarayan and Dhara Ranasinghe

LONDON, (Reuters) – Euro zone government bonds yields fell sharply across all regions on Friday. Investors reacted to a new coronavirus variant in South Africa and piled into safe haven assets.

Scientists considered the variant to be the most important yet discovered, Britain stated on Friday. Authorities also needed to determine if it renders vaccines ineffective.

Rainer Guntermann, Commerzbank’s rates strategist (DE:), said that “it’s a classic risk-off move to safe havens like government bonds with equities under pressure.”

He said that although it is early, some investors might prefer to hold a little more money in safe havens going into the year-end. “We also need to evaluate how this feeds into central banks risk assessments, even if we don’t find this to be very concerning,” he stated.

It’s an indication that the pandemic can recur at any moment.

While safe havens such as gold, government bonds, Japanese yen, Swiss Franc, and Japanese franc were highly sought after, Asian and European equity markets suffered losses.

Germany’s 10-year bond yield was a benchmark and fell 9 bps to -0.33% by 1530 GMT. Others highly rated Euro zone government bond yields were slightly lower at around 8 bps.

The 10-year Italian government bond yield fell below 1% and was currently at 0.97%. This is 9 bps lower than the previous day.

U.S. Treasury yields dropped around 7-10 bps over the curve.

In the meantime, expectations for rate increases in the single currency block fell. Money market investors had priced in approximately 50% of a 10 basis-point rate hike by the European Central Bank in Dec 2022. They also fully expected such an increase earlier in this week.

Luis de Guindos, an ECB official and Ignazio visco, a policymaker at the bank said that although the eurozone economy is still recovering, the threat of a pandemic remains a concern.

Vice-president de Guindos of the ECB said that central banks are still working on ending their Pandemic Emergency Purchase Programme, which was scheduled to be completed in March.

Christine Lagarde (ECB President) was quoted telling a German newspaper that the central bank expects inflation to fall starting in January.