Sticking to the German script, we see ECB President Mario Draghi today call for more fiscal union within the Euro-zone. It seems the first step in getting more action from the ECB is for countries to agree to more stringent budget rules with the passage of Treaty changes in order to enshrine a tighter fiscal integration of the union.

width=350From Financial Times: A fiscal compact, binding governments to stronger public deficit and debt rules, would be definitely the most important element to start restoring credibility, Mr Draghi told the European parliament. Other elements might follow, but the sequencing matters, he added.

His comments were the clearest indication yet of the ECB leaving itself room for manoeuvre if eurozone leaders agree at a summit next week on clear steps towards a eurozone fiscal union. They came just hours before Nicolas Sarkozy, French president, was due to set out his proposals for restoring stability to the eurozone.

Mr Draghi warned, however, that the ECB had to stick within European Union treaties. Its action in government bond markets was limited and temporary and aimed at ensuring its interest rate decisions were transmitted to the real economy. It is not eternal, and it is not infinite.

The ECB has been flooding the European financial system with liquidity and there are still other steps the bank can take to help mitigate a slide into recession, including cutting interest rates at its next meeting, expanding the collateral it takes to give out loans, and to offer longer term (2 or 3 year) loan maturities to financial institutions.

Spain and French Yields Slide Following Good Auctions

Meanwhile, the salvo launched by the Fed and other central banks yesterday seems to have given the European bond markets a bit of calm, and Italian yields fell at an auction, and a debt auction by Spain saw strong demand.

In France, we see the

From Bloomberg: France sold 1.57 billion euros of 10-year debt at an average yield of 3.18 percent, down from 3.22 percent at the last auction on Nov. 3.

The auction helped spark a rally in European bonds, with the French 10-year yield retreating by as much as 27 basis points, the most since 1991.

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In Spain, borrowing costs were up in their auction, but the debt sale saw relatively healthy demand.

From Bloomberg:  Spain auctioned five-year bonds today at an average yield of 5.544 percent, compared with 4.848 percent when notes of a similar maturity were offered on Nov. 3, the Treasury said. That was the highest since at least 2005, according to data compiled by Bloomberg. It paid 5.276 percent on bonds due in 2016, and an average 5.187 percent to sell notes maturing in April 2015, compared with 3.639 percent in October.

Demand for Spain's five-year bonds was 2.69 times the amount sold, compared with 1.62 last month and the bid-to-cover for the April 2015 notes was 2.7 compared with 2.07 in October.

As we can see below, periphery Euro-zone bonds rallied as well with Spanish' yeild falling from a high of 6.27% to 6.01%.

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This is a positive sign for the bond markets and should bode well for risk sentiment and for the EUR for today's session. However, we'll see how long this period of lower yields lasts, as it may just be a temporary response to the coordinated central bank action from yesterday's session.

Nick Nasad is the Chief Market Analyst at FXTimes - provider of Forex News, AnalysisEducationVideosCharts, and other trading resources.