LONDON: German government bonds edged up on Tuesday, supported by uncertainty over when Spain may ask for a bailout after euro zone ministers said the country did not need one yet.
Officials meeting in Luxembourg said Spain was taking steps to overhaul its economy and was funding itself successfully in financial markets, dashing hopes for a swift move to end the debt problems of the euro zone's fourth largest economy .
Nonetheless, investors expect that Madrid will ultimately have little choice but to ask for aid, but without signs of that being imminent, safe-haven German bonds were likely to stay stuck in their recent trading range.
The International Monetary Fund said that Spain will miss its deficit targets this year and next and debt will jump to more than 90 percent of gross domestic product in 2013 as the country recapitalises its banking sector.
"It's difficult to envisage a scenario where Spain doesn't ask for a bailout...the dominant market discount is that some form of bailout is agreed over the next number of weeks," said ING's head of investment grade strategy Padhraic Garvey.
"There's no panic, the market is not necessarily going to punish Spain on a whim."
Spanish government bond yields have settled far below their July highs of over 7.5 percent. Ten-year yields were 4.5 basis points higher on the day at 5.78 percent.
"At 10-year yields comfortably below 6 percent, the Spanish government remains loath to compromise on conditions, hoping that a rating affirmation by Moody's this month will buy more time," Commerzbank strategists said in a note.
German Bunds remained locked in a range with futures bouncing broadly between 141.00 and 142.00 in recent sessions.
"I can't see us moving far from that until we get something more concrete on Spain," a trader said.
"People aren't carrying huge amounts of risk and there's still buying of dips in Bunds...the periphery has done well and we're seeing some of the (fast money) take profits there and move back to the core," he added, referring to accounts such as hedge funds who take short-term positions in the markets.
Bund futures were 9 ticks higher at 141.48, with 10-year cash yields down a basis point at 1.468 percent.
UBS technical analysts Richard Adcock said a break below 140.60 - the 38 percent retracement of September's rally would risk a further sell-off in the futures contract to 139.76 and the Sept. 17 low at 138.41, the bank's target level.
The Netherlands will kick off the week's bond auctions, selling up to 2.5 billion euros of 5-year bonds. The sale is expected to go smoothly with analysts saying the bond appears "cheap" when compared with other Dutch bonds of similar maturities.
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