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Euro zone government bond yields were mixed on Tuesday after falling a day earlier as concerns about the economic impact of the Omicron coronavirus variant curbed risk appetite and expectations of policy tightening by central banks this week.

Asian stocks and oil prices slipped as the rapid spread of the new variant rattled investors.

Major central banks are due to meet this week, including the Federal Reserve and the European Central Bank, to assess risks posed by Omicron and whether they should reduce pandemic emergency measures put in place nearly two years ago.

"Ahead of the Fed tomorrow, there was a decidedly risk-off tone in markets as investors were alarmed by some of the virus headlines, especially those here in the UK," Deutsche Bank analysts said.

At least one person has died in Britain after contracting the Omicron coronavirus variant, the first publicly confirmed death globally from the swiftly spreading virus strain.

Germany's 10-year government bond yield, the benchmark of the bloc, was up 0.5 basis points at -0.376%.

Volatility is expected to rise with possible large swings in yields as liquidity wanes into year-end.

"It is that time of the year again, where it is futile to try explaining every market move - even in hindsight," Commerzbank analysts said in a note to clients.

"But it would probably require a trigger to take Bunds out of their confined -0.3/-0.4% range. With the market thus close to major resistance, we prefer scaling into tactical shorts," they added.

Investors will focus on the US producer price index (PPI), which analysts expect to rise 9.2% year-on-year after climbing 8.6% in the month before.

"We view long-end rates as capped, but short yields could make more headway, for instance, on an upside US PPI surprise," ING analysts said, adding that the "Fed's hawkish shift looms large over rates markets."

Italy's 10-year government bond yield fell 1.5 basis points to 0.901% after hitting a one-week low at 0.899%.

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