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In addition to the worrying explosion in Greece’s six-month bill yield<\/a>, shown right, now Greece’s two-year short-term bond yield has brushed against the 8% level.<\/p>\n Investors are losing faith in Greece’s ability to refinance itself, not just in the long-term, but even in the short-term. Which poses an immediate challenge to Europe because Greece simply can’t sustain itself<\/a> if it has to pay the rates that the market is now demanding.<\/p>\n Times:<\/a><\/p>\n The volatile bonds movement prompted the European Central Bank to ease the pressure on Greece’s troubled domestic lenders, who have seen €8 billion flow from their coffers in recent weeks. The ECB said that it would prolong a loosening of the rules on using government bonds as collateral for its loans. Bond market analysts believe a rescue is almost inevitable if yields continue to climb as they did yesterday — in the case of the two-year bond by a full percentage point to more than 8 per cent.<\/p>\n …<\/p>\n Jean-Claude Trichet, the ECB chairman, was at pains yesterday to dispel any doubts about Greece’s solvency. He denied the extension of looser collateral rules was aimed at Greece and said: “Taking all the information I have, default is not an issue for Greece.” His comments were not enough to calm bond and share markets, which suffered a sharp sell-off yesterday in response to the Greek scare.<\/p>\n