LONDON: Euro zone government bond yields dropped sharply across the board on Friday as investors reacted to a newly-identified coronavirus variant spreading in South Africa by piling into safe haven assets.

The variant was considered by scientists to be the most significant yet found, Britain said on Friday, adding that authorities needed to ascertain whether or not it made vaccines ineffective.

"Concerns about a new COVID variant that could be significantly more resistant to current vaccines due to a significantly altered spike protein have caused risk aversion to rise significantly in the markets," analysts at BayernLB said in a note.

Safe havens, such as government bonds, the Japanese Yen, the Swiss Franc, US Treasuries and gold are in demand, while Asian and European equity markets have recorded significant losses, the analysts noted.

"The rest of the trading day will now be determined by further newsflow on the new variant, including an emergency meeting of the WHO," the added.

Germany's 10-year government bond yield, the benchmark for the bloc, was down 7 bps at -0.32% at the open. Other highly-rated euro zone government bond yields were lower 5-6 bps.

US Treasury yields slipped around 10 bps across the curve.

Meanwhile, rate hike expectations in the single currency bloc fell, with money market investors pricing in a roughly 50% chance of a 10 basis point rate hike from the ECB in December 2022, having fully priced in such a move earlier this week.

A raft of European Central Bank policymakers are due to speak later on Friday, including board members Isabel Schnabel, Fabio Panetta and ECB vice president Luis de Guindos at 1230 GMT.

Analysts said they might provide some clarity on growth projections and on how the ECB will unwind its pandemic emergency purchasing programme (PEPP), particularly in the light of the new variant.