Euro zone government bonds drifted lower on Monday with attention still on peripheral issuers before a meeting of the bloc's finance ministers following last week's pledge of support for debt-ridden Greece.
Greek bonds were quiet due to a public holiday in Greece and most other European sovereign issuers' yield spreads over German Bunds held broadly steady.
The ministers, meeting on Monday evening, will pile pressure on Greece to implement in full planned budget deficit cuts so that the euro area will never have to deliver on its promise of support for Athens. European Union ministers meet on Tuesday. Several euro zone sources have said specific measures will not be discussed on Monday, frustrating financial markets which are hungry for details of any support package.
The market will be looking for any confirmation of support for the Greek authorities, but it looks like Germany in particular will be asking for more fiscal measures before they're prepared to provide that, said Nick Stamenkovic, a rate strategist at RIA Capital Markets.
So that might stall the recent improvement in Greek spreads.
The premium investors demand to hold 10-year Greek sovereign debt rather than German paper widened around 15 bps to 289 basis points at Friday's settlement, but remained well below the recent peak above 400 bps.
Greek markets were closed on Monday for a national holiday. The cost of insuring against a default by Greece fell slightly to 350,000 euros per 10 million euros of exposure, compared with 354,900 at Friday's New York close.
The absence of a detailed support package this week will leave the Greek government bond market, and the other high debt/deficit euro zone members, open to speculative attack, ICAP said in a note.
The continued weakness of the euro zone economy heightens the downside risks for Greece as it makes the impact of necessary fiscal retrenchment all the more painful.
The euro zone's economic recovery lost steam in the final quarter of last year as gross domestic product barely expanded, with France the only one of the currency area's four biggest economies to post growth.
Peripheral debt was mostly calm. Portuguese 10-year yield spreads over Bunds widened in early trade before returning to stand little changed at 123 bps and the country's CDS prices nudged in around 3 bps 191 bps.
Irish bonds underperformed, with the 10-year yield spread around 7 bps wider at 147 bps ahead of Tuesday's auction of up to 1.5 billion euros of 2014 and 2020 government paper.
With the Greek situation not yet put to bed, Ireland was always going to have to price in a chunky concession for this week's auctions, said Credit Agricole CIB rate strategist Peter Chatwell.
As Ireland's market is so small, and liquidity today so thin, the concession for the 5- and 10-year auctions is going to affect surrounding maturities too.
At 6:40 a.m. EST, two-year German bond yields were a third of a basis point higher at 0.991 percent, with 10-year yields a basis points higher at 3.210 percent.
March Bund futures were 16 ticks lower from Friday's settlement close at 123.38.
No euro zone data or supply were due on Monday and U.S. markets are closed, leaving trading volumes thin and giving rise to some volatility.