(Corrects timing of Italian auction to Tuesday in final paragraph)
By Abhinav Ramnarayan
LONDON, Nov 29 (Reuters) - Euro zone government bond yields hovered near two-month lows on Monday as investors looked to assess the impact of the Omicron coronavirus variant and the resulting measures on global economies.
The variant was found around the world over the weekend, with cases in the Netherlands, Denmark and Australia even as more countries imposed travel restrictions.
While markets have calmed a touch from the risk-off bond rally on Friday, investors will be scrutinising scientists' assessment of the efficacy of vaccines against the new variant and trying to assess how potential measures could affect economies and policy.
"We now face a period of uncertainty as to the efficacy of existing vaccines, and getting more clarity on this may take a couple of weeks at best," said Peter Chatwell, head of rates at Mizuho.
A range of outcomes are possible, with Mizuho believing that a set of light lockdowns is the most likely scenario. However, the presence of a large downside scenario means that investors and central bankers will need to be revising down their growth forecasts, Chatwell said.
Having dropped substantially on Friday, Germany's 10-year Bund yield was up a basis point at -0.32% early on Monday.
This is still 12 basis points below last week's highs and close to a two-month low of -0.356% hit on November 22.
Other high-grade euro zone bond yields were also up about a basis point on the day.,
Rate hike expectations have been pushed back since the news broke of the Omicron variant, with money market participants no longer expecting an increase in the ECB deposit rate in 2022.
Long-term inflation expectations in the single currency bloc have fallen back substantially to 1.81%, according to a key market gauge, compared with the 2.09% seen in October.
On Tuesday, Italy is due to sell 4.25 billion euros of five- and 10-year bonds to kick off a busy week of European government bond supply, potentially putting some upward pressure on yields as investors sell to make space for the new debt. (Reporting by Abhinav Ramnarayan; Editing by Kirsten Donovan)