Spain's Treasury paid the highest yields in 14 years to issue short-term bills on Tuesday, in a sign that a resounding election victory for the center-right People's Party on Sunday has done little to soothe investor nerves.

The Treasury issued a total of 2.98 billion euros ($4 billion) of 3 and 6-month bills, at the top end of the range set by the Treasury of between 2 billion and 3 billion euros.

It doesn't look great, the continuing trend toward ever higher yields to get anything done, it has to be concerning, head of fixed income at Evolution Securities Gary Jenkins said.

The yields are a reflection of where their paper trades in the secondary market but if it wasn't for the European Central Bank there wouldn't be a Spanish or Italian bond market, he added.

The ECB restarted its sovereign bond buying program in August and has concentrated on Spanish and Italian debt in the secondary market.

However, it has shown little sign of bowing to political pressure to increase the purchases, buying only 8 billion euros last week.

Spain's outgoing Socialist government, through reforms and austerity measures, has helped keep debt costs manageable, but as the euro zone crisis drags on and fears of a global economic slowdown intensify, traders have been dumping periphery debt.

On Sunday, Spaniards delivered the Socialists an electoral drubbing, granting the PP the largest parliamentary majority in 30 years, but uncertainty over the new government's plans for the economy has fueled investor nerves.

Madrid-based think tank Funcas, headed by former Treasury Secretary Carlos Ocana, who left the government before the summer, said it expected deficit-busting spending cuts would make the economy shrink 0.5 percent in 2012.

The average yield on the 3-month T-bill more than doubled to 5.11 percent from 2.292 percent one month earlier, the highest level since the bill was re-introduced in 2003.

The Treasury sold 2.01 billion euros of the three-month bill and it was 2.9 times subscribed, after 3.1 times at the October auction.

The 6-month T-bill saw yields jump to 5.227 percent from 3.302 percent at the last auction, selling 966 million euros at a bid-to-cover ratio of 4.9 after 2.6 in October. ($1 = 0.7425 euros)

(Additional reporting by the London Debt desk; editing by Barry Moody)