Focus will mainly be on Austria's auction of 1.3 billion euros of 10-year bonds which will show how worried investors are about the country's exposure to neighbouring Hungary, which is locked in a dispute with the IMF over international aid.

Austrian government bond yields spiked to their highest in over a month last week on concerns of potential fallout for its banking sector from lending to Hungary. A trader said the relatively small size of the Austrian debt sale and the price falls last week was likely to see a smooth absorption of the bonds.

"There was fairly decent concession in Austrian bonds and obviously the Hungarian situation hasn't helped the Austrian market but it seems to have gone a bit quiet for now," a trader said.

"(The auction) should be OK as 1.3 billion euros is not too big. In terms of supply we are more interested in Spanish and Italian sales later in the week as we get the details of Italian supply tonight."

At 0726 GMT, the Bund future was 26 ticks down at 138.84 compared with 139.10 at Monday's settlement.