ECB President Mario Draghi announced the plan to offer lenders unlimited funds for three years after the central bank's policy meeting on Dec. 8. Spain sold almost double its initial maximum target of securities at an auction yesterday.

“The ECB intervention is supporting banks, and that's positive,” said Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London. “The supply is out of the way, so that's contributing to an improvement in sentiment.”

Italian two-year note yields fell toward 5 percent, a level last reached on Nov. 1. The nation's lower house of parliament started voting on a 30 billion-euro ($39 billion) budget plan, and the government has requested a confidence vote in the Chamber of Deputies.

Eoin Treacy's view If anything, sentiment has deteriorated over the last few weeks. Pundits are openly talking about a breakup of the Euro, a pattern of deleveraging has gripped the commodity markets, uncertainty as to the exact text of the fiscal treaty is a persistent factor and volatility remains high. However the various government bond spreads suggest a more nuanced story is unfolding.

The only country where unrelenting selling is still evident is Greece. 10-year spreads at 3300 basis points over German Bunds stand in sharp contrast to most other countries where spreads have narrowed, some quite considerably this week. Portuguese spreads remain in a consistent medium-term advance but pulled back somewhat this week. An additional decline will be required to indicate more than a temporary respite. The Irish market remains quiet at least in part because the Irish government has no need to return to the bond markets potentially until 2013.

Spanish and Italian spreads pulled back sharply from their respective pre-convergence peaks: posting their largest reactions in more than a decade in the process. Belgian, French, Austrian, Dutch and Finnish spreads also pulled back sharply.