BY NEELABH CHATURVEDI

LONDON—Italian and French government bonds reversed earlier declines to trade modestly higher in light volumes Monday, although the market was cautious amid a deadlock over a new rescue package for cash-strapped Greece.

The yield on the benchmark 10-year Italian bond fell by 0.05 percentage point to 5.63%, having traded as high as 5.77% earlier Monday. The corresponding Spanish bond yield was ...