As was the case at the height of the euro zone debt crisis in November last year, the low yields in Germany led to fewer bids than the amount on offer, a phenomenon which debt experts term as a technically uncovered auction.

 "The market looks to have got a nosebleed at these levels," Credit Agricole rate strategist Peter Chatwell said.

 The average yield of 1.77 percent at the sale was an all-time low. Ten-year cash yields were 6.3 basis points higher on the day at 1.705 percent versus 1.685 percent before the auction, while Bund futures fell 60 ticks to 139.72.

 But as in November, the post-auction sell-off is expected to be a brief set-back as confidence that Spain can keep its public finances in check is waning and fears mount that the country may be a source of contagion for the rest of the euro zone.