Spain's borrowing costs soared to 14-year highs Tuesday at its first debt auction since the right won weekend general elections, raising the pressure for rapid economic reforms. Investors punished Spanish debt despite the conservative Popular Party's crushing win over the ruling Socialists in Sunday's vote and its promises to fix the economy and slash the deficit. German Chancellor Angela Merkel and major credit rating agencies alike warned Spain of a daunting reform task ahead if the new government is to change market perceptions. The Treasury raised 2.978 billion euros ($4 billion) in an auction of three- and six-month bills but had to offer yields of more than five percent, far higher than at the previous comparable sale on October 25. Demand was strong, outstripping supply by more than three-to-one and allowing the state to meet its target of raising 2.0-3.0 billion euros in fresh funds, the Bank of Spain said. But rates for the three-month bills more than doubled to 5.110 percent from 2.292 percent and the six-month bills jumped to 5.227 percent from 3.302 percent, both the highest in 14 years. The yields were also significantly higher than those traded in the open market, which closed on Monday at 1.725 percent for previously-issued three-month bills and 2.025 percent for six-month bills. The European Central Bank has been engaged in a heavy bond-buying programme, keeping yields down on the traded debt of fragile eurozone members including Spain and Italy. Credit rating agencies warned of big challenges for the prime minister in waiting, the grey-bearded 56-year-old Mariano Rajoy and his Popular Party, which secured an absolute majority in parliament. The party now has a "window of opportunity" to reform, said a report by Fitch Rating, which cut Spain's ratings last month to AA-negative from AA-plus and threatened a further downgrade. "If it is to improve market expectations of its capacity to grow and reduce debt within the confines of the eurozone, it must positively surprise investors with an ambitious and radical fiscal and structural reform program," Fitch said in a statement. New York-based Standard & Poor's, which last month downgraded Spain from AA to AA-minus with a negative outlook, said the Popular Party victory changed nothing for the moment, although it could speed up reforms. Rajoy is likely to be sworn in on December 20, taking over a country suffering a 21.5-percent jobless rate and the threat of a recession at the start of 2012 after zero economic growth in the third quarter. "In tough times for Spain and Europe you have received a clear mandate from your people to pass and implement the necessary reforms," Merkel wrote to Rajoy in a letter released Tuesday. The conservatives have said they will cut spending to meet Spain's deficit targets despite analysts' expectations of some slippage on the deficit this year. Spain aims to cut the public deficit from the equivalent of 9.3 percent of gross domestic product last year to 6.0 percent this year and 4.4 percent in 2012. Analysts are calling for labour market reforms and a restructuring of the banks, weighed down with bad assets after lending hand over fist during a property bubble that imploded in 2008. The Bank of Spain on Monday formally took over troubled lender Banco de Valencia, injecting 1.0 billion euros in capital and opening a 2.0-billion-euro line of credit. The debt risk premium, the extra rate demanded for Spanish 10-year government debt compared to safe-haven German debt, was stuck at a costly 4.69 percentage points late afternoon, up from 4.63 percent at the open. Share prices fell 1.45 percent. The IBEX-35 index of leading companies on the Madrid stock exchange dropped 116.1 points to 7,904.9, its lowest close since September 22.