Germany's auction of two-year debt later in the session will test how willing investors are to buy paper which carries an ultra-low yield, but is perceived to be a safe-haven owing to its high liquidity and the robust German economy.

"You could argue that there's not much value at these yield levels, but I think two-year (yields) are going to zero and so you've still got about 15 basis points to get your hands on," a trader said.

Ahead of the auction the two-year German yield was 0.7 basis points lower at 0.17 percent, within a few basis points off the record low around 0.14 percent.

Bund futures were 4 ticks higher at 139.72.

Greece's last-ditch efforts to strike an agreement with private bondholders on reducing the country's debt stock looked set to keep Bunds supported as fears grow that the country could slip to a disorderly default.

Talks between private sector creditors and officials resume on Wednesday in an effort to break the deadlock over how much of a loss investors are willing to take on their loans to Greece.

Portugal will issue short-term treasury bills later in the session. Bonds issued by the country have suffered heavy pressure this week after Standard & Poor's cut its credit rating to 'junk', forcing some index-tracking investors to sell.

Despite the forced selling, the bill issuance, which is mainly supported by resilient demand from local banks, was expected to go smoothly.