However, underlying demand for German debt was expected to remain solid at least in the near term as the bloc's debt crisis keeps investors reluctant to pursue riskier strategies.

At 0702 GMT, Bund futures were 13 ticks lower at 138.16, with 10-year cash yields up 0.6 basis points at 1.909 percent.

Germany plans to sell 5 billion euros of 2 percent 10-year Bunds due January 4, 2022 later in the day.

The average yield when the bond was launched in November was 1.98 percent, with a bid/cover ratio of 1.1. However, taking into account the near 40 percent amount retained, bids were not enough to cover the amount of paper on offer.

"Hopefully it will not be as bad as last time, but I don't think the bond is great value. We've had decent German cash flows and coupons and that gives it a bit of support and I think it will be alright without being spectacular," a trader said.

France follows in a busy supply schedule for the start of the year with an auction of long-term debt on Thursday. But the key test of sentiment will be next week, when Spain and Italy -- the two countries most exposed to an escalation of the crisis -- issue bonds.

Euro zone PMI data later in the day could put further downward pressure on Bunds if it confirms the recent trend of stronger-than-expected economic figures.