S&P downgraded on Friday the ratings of Italy, Spain, Portugal and Cyprus by two notches and the standings of France, Austria, Malta, Slovakia and Slovenia by one notch each. Germany's triple-A rating remained intact.

The downgrade, although expected, raises concerns about the triple-A rating of the euro zone's EFSF bailout fund, adding to doubts that the bloc's anti-crisis tools were powerful enough.

The fact that Germany is still top-rated, despite warnings last month from S&P that it could be downgraded by a notch, is expected to put further widening pressure on yield spreads.

Further hurting the confidence in the currency union's chances to muddle through the crisis, negotiations on a debt swap by private creditors seen as crucial to avoid an unruly Greek default broke up without agreement in Athens.

"I just want to be long Bunds, five-years and 10-years. They're going up," one trader said.

At 0704 GMT, Bund futures were 13 ticks higher on the day at 140.07, having hit a record high of 140.23 on Friday. Ten-year cash yields were 1.5 bps lower at 1.757 percent.

Investors will be on alert for European Central Bank forrays into the secondary market, with the perception of its commitment to keep borrowing costs for Italy and Spain affordable seen as key to prevent a fast escalation of the crisis.

Italy takes a break from supply this week, but Spain comes to the market with sales of 2016, 2019 and 2022 bonds.