The cost of borrowing for eurozone countries under strain eased sharply yesterday, two days before a eurozone summit on a second rescue for Greece and to curb the debt crisis.

The cost of borrowing for 10 years for Italy fell to 5.779 per cent from 5.955 per cent late on Monday when it had edged above six per cent.

The yield, or rate, on 10-year Spanish debt fell to 6.173 per cent from 6.293 per cent.

The equivalent yield for Greece was little changed at 17.658 per cent from 17.602 per cent.

But the yield on German and French government bonds rose. The yield on the 10-year German Bund rose to 2.684 per cent from 2.646 per cent and on French debt to 3.389 per cent from 3.367 per cent.

When risk is perceived to rise, demand for government bonds falls, so the price of existing instruments being traded on the market falls. This in turn automatically increases the fixed income attached to the instrument as a percentage of the new lower price.

If bonds rise, yields fall.

In either case, the market is signalling the interest rate which the government must offer if and when it next raises funds. Yields of six per cent or more are considered to be unsustainable for economies such as those in the European Union.

The rise of the yields on the bond market, reflecting many concerns about first the state of the economy in Greece, then in Ireland and Portugal, made it impossible for these countries to borrow from private investors and savers, and drove them into the arms of rescues by the European Union and International Monetary Fund.