Portuguese two-year yields rose 36 basis points on the day to 21.61 percent with the moves exacerbated by an illiquid backdrop. The upfront payment required to buy 10 million euros of insurance on Portuguese debt hit a record high of 4.2 million euros.

Other peripheral euro zone government bonds such as Italy regained some ground over benchmark Bunds as signs of progress in Greek debt swap talks eased fears of an unruly default.

"Italy's tightened back a little bit... The European Union got the ... agreement but there's nothing new there. We've seen some nibbly buying of Spain and Italy and I think that this is fast money moving prices around," a trader said.