LONDON: German government bonds edged higher on Monday with the market cautious about promises from the German and French leaders to unveil comprehensive new measures for solving the euro zone debt crisis as they gave no details.
German Chancellor Angela Merkel and French President Nicolas Sarkozy said their goal was to come up with a sustainable answer to Greece's woes, agree how to recapitalise banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit on Nov. 3-4 .
The euro rose and European equity markets nudged higher but bond markets were not impressed.
"There's no detail whatsoever," a trader said. "It's a small positive for risk appetite but we've been here before and I don't think we're really going to believe it until we see it."
Bunds remained cautious before a key vote by the Slovak parliament on Tuesday to ratify changes to the euro zone rescue fund which would increase its lending capacity .
On Friday, credit rating agency Fitch cut Italy and Spain's sovereign ratings and Moody's warned it could cut Belgium due, among other reasons, to the cost of bailing out French-Belgian financial group Dexia .
"This is also not a positive story for France, but is more manageable," ING rate strategist Padhraic Garvey said in a note.
"No immediate credit rating actions are seen for France on the back of this, but it is still not good for French government bonds."
December Bund futures were eight ticks higher at 135.49, although off levels above 135.80 seen in after hours trading on Friday.
Bond markets have sold off over the past two weeks on optimism that euro zone policymakers had grasped the urgency of the crisis, but the key support level of 135.01 -- the late September low -- held on Friday.
RIA Capital Markets' rate strategist Nick Stamenkovic said moves by the European Central Bank to provide banks with longer-term liquidity had eased some of the market's worst fears, taking some of the shine off Bunds.
But although investors were unlikely to set up short positions in Bunds yet, room for a bigger recovery was limited.
"Yields can't fall much further while there's hopes they will pull a rabbit out of the hat so, unless we see news to the contrary, risk markets should be fairly stable and flight-to-quality flows in to Bunds will be limited, keeping a floor under yields," he added
Two-year bond yields were down one basis point at 0.597 percent, with 10-year yields 1.6 bps lower at 1.988 percent, dipping back below the 2 percent level that was briefly breached on Friday.
Meanwhile, doubt over the ability of current proposals for relieving Greece's debt burden grew.
Greece's IMF representative said the country's borrowing needs will be higher than currently projected with governments or private bondholders having to pick up the tab , and the German finance minister said the "haircut" private bondholders had been asked to take might have been underestimated .
Trading is expected to be thin throughout Monday with Japan off while the United States celebrates Columbus Day.
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