LONDON: German government bunds opened lower on Thursday after Germany and France reached a common position ahead of a crunch euro zone summit where leaders will try and agree on a second bailout package for debt-stricken Greece.
Germany and France will present details, which have not yet been made public, to other euro zone leaders from 1100 GMT in an attempt to stop the debt crisis spreading throughout Europe.
But traders said even if an agreement is reached on further aid for Greece, there may still ultimately be disappointment in the market.
"We may take a bit of heart from any agreement to start with but still err on the side of disappointment over the next week or so if underlying problems aren't addressed," one trader said.
"The devil will be in the detail."
September Bund futures were 26 ticks lower at 127.88, with 10-year yields up almost 5 basis points at 2.817 percent.
Italian BTP futures were 35 ticks higher at 102.40.
Market sentiment will be tested earlier in the session by an auction of up to 2.75 billion euros of 10- and 15-year Spanish bonds.
"The Franco-German agreement...and successful auctions out of Spain today should add to the improved sentiment," said Commerzbank analyst Marcel Bross.
"However, with event risk looming large later in the session, we expect fast money to take profit on opportunistic tighteners going into today's summit."
UniCredit rate strategist Chiara Cremonesi said a slightly lower than average amount should be a positive for the auction.
Spanish 10-year yields retreated below 6 percent on Wednesday, although only just and market sentiment remains fragile.
France will also sell up to 9.5 billion euros of fixed-rate and inflation linked bonds.
Copyright Reuters, 2011