Euro zone government bond yields fell on Thursday as the new Omicron coronavirus variant dampened risk sentiment. European shares dropped after a recovery in stock markets overnight was wiped out when United States identified its first known COVID-19 case caused by the Omicron variant in a fully vaccinated patient. read more That news had pushed U.S. Treasury yields lower after the European close on Wednesday and euro zone bond yields fell sharply on Thursday. read more Germany’s 10-year government bond yield , the benchmark of the bloc, dropped to the lowest since September at -0.394% and was last down 4 bps to -0.37%. "Bunds remain headline-driven in line with swings in risk sentiment on mixed Omicron headlines,” Commerzbank analysts said in a note to clients mentioning the first confirmed case in the United States following reassuring WHO comments on mild symptoms. “Even as the case for a faster taper is growing stronger with every bit of economic data, the long end of yield curves remain at the whim of Omicron newsflow,” ING analysts said. Germany’s 30-year government bond yield fell as low as -0.085%, the lowest since February. The yield curve as measured by the gap between two and 10-year German bond yields fell as low as 34.3 bps, the flattest since September, echoing a move in the U.S. Italy’s 10-year bond yield was last down 7 bps to 0.96%. The closely-watched spread between 10-year Italian and German yields tightened to 132 basis points after hitting the highest since November 2020 on Wednesday. "Italian bond prices are now outperforming after underperforming core and semi-core bonds in the last few days," Rene Albrecht, strategist at DZ Bank, said. ING"s analysts said that if the ECB were to delay a decision on its bond buying programme, it could initially be seen as dovish. "But it is a two-edged sword. It extends a period of uncertainty and, alongside it, volatility,” they said, mentioning a potential negative impact on Italian bonds in the medium term. Sources told Reuters on Wednesday that a growing number of European Central Bank governors are considering delaying part of a decision on the ECB"s stimulus plans as the outlook has been muddied by the new coronavirus variant and mounting price pressures. read more "The bottom line of the latest story is that the ECB is likely to decide that PEPP (Pandemic Emergency Purchase Programme) will end in March while possibly keeping the flexibility of the unused part of the envelope beyond March," Commerzbank analysts argued. ECB policymakers stuck to the transitory description of inflation, even as U.S. officials made the case for abandoning the use of "transitory" as price pressures have proven more persistent than expected. read more The bank also said the European Union should change its fiscal rules to make them more supportive of growth and investment, and make the rules on debt reduction more realistic. Reporting by Stefano Rebaudo, editing by Kirsten Donovan and Angus MacSwan