Market activity is likely to be thin in the last trading session before Christmas and remain so until January, exaggerating any price moves. Traded volumes in March Bund futures fell to just 256,000 lots on Thursday, around a third of normal levels.

But German debt was set to remain supported and ultimately retest recent highs with the threat of mass sovereign credit ratings downgrades by Standard and Poor's for the euro zone still hanging over markets.

Month-end index extensions are also supportive this month.

Rating agency Moody's maintained Austria's triple-A rating with a stable out look on Friday but warned the debt crisis was still a potential danger.

March Bund futures were 22 ticks lower at 137.61. Two-year bond yields were steady at 0.237 percent, with 10-year yields almost a basis point higher at 1.954 percent.

"The near-term outlook, we think, will be dominated by the resurgence of peripheral supply strains," said Credit Agricole rate strategist Peter Chatwell in a note.

Doubts over whether this week's European Central Bank tender of cheap loans will be effective in easing the strain for troubled euro zone economies will keep peripheral bonds under pressure. Italian paper in particular is expected to come under pressure heading into next week's debt auctions .

A drop in US weekly claims for jobless benefits to a 3-1/2-year low as well as improvement in US consumer sentiment in December boosted risk appetite on Thursday.