Plans made on the weekend by Prime Minister Kevin Rudd and European leaders may avert systemic financial collapse and thaw frozen credit markets.
Rudd pledged the Federal Government would guarantee all deposits for the next three years and all term wholesale funding by local banks, at a crisis meeting on the weekend.
At a different meeting, European leaders said they would use taxpayer funds to keep major banks afloat, while the US Federal Reserve announced it will use all policy options to end the crisis.
Russell Investments chief investment officer of multi-strategy solutions - Americas Erik Ristuben said the recent government moves to shore up banks' solvency had instilled basic trust within the global financial system.
The Australian Dollar Year Quarterly Swap to Year Generic Bond Spread, a gauge of funding cost expenses, plummeted a record 50 per cent to around 78 basis points yesterday.
The gauge had blown out to 169 basis points on Friday. The measure was typically between 20 to 30 basis points for years before the credit crunch began in August.
Other closely watched benchmarks including London Interbank Offered Rate and European Interbank Offered Rate had eased.
"When [interbank] rates blow out to 3 per cent or 3.5 per cent like they are now, banks cannot function. You are basically borrowing [money] for a higher price than you can lend," Incredible Charts founder and technical analyst Colin Twiggs said.
"I suspect this week it is going to come off, the measures taken now will sort of relax market confidence."
Twiggs warned that even if rates eased it will not mean the All Ordinaries will stabilise or take off, as concerns about a global recession loomed.
