Yields on three-month Spanish notes jumped to 5.11pc at a sale on Tuesday, higher than rates paid by Greece last week.
Mr Rajoy's team is scrambling to find ways to shorten the paralysing hiatus until mid-December when the new government is finally able to take charge under Spanish law.
"We have to go beyond strictly legal requirements because the markets are not going to wait," said Miguel Arias Canete head of the Partido Popular's top body.
Close advisers to Mr Rajoy said the party will have to flesh out exactly how it plans to pull the country out of its downward spiral, and perhaps reach an accord with the outgoing socialist to start implementing emergency measures. The country may need €30bn (£26bn) in fresh cuts to reach its 4.4pc deficit target next year.
HSBC said the country is in a race against time to avoid becoming the fourth EMU country to need a bail-out. "The question now is whether the new government is able to reassure markets that it can deliver quickly enough to beat back the market bears and avoid turning to the (EU-IMF) troika," said the bank's strategist Madhur Jha.
HSBC called for "more clarity" on bank policy, labour reforms and budget austerity. "Markets are clearly worried about the Spanish banking sector – bank restructuring and the provisioning of real estate loans on banks balance sheets," he said.
The bank said the double whammy of surging borrowing costs and a slide back into recession together risk inflicting serious damage to Spain's debt-dynamics, pushing public debt above 86pc of GDP over the next three years.
"Spain cannot face this crisis by itself. The sovereign crisis is a eurozone problem and needs a eurozone-wide solution. The last few weeks have shown that the window of opportunity is rapidly closing for Spain and other peripheral countries unless some very concrete decisions are taken at the eurozone level to negate all talk of a euro break-up. With governments dragging their feet, the bulk of support over the next few months will have to come from the ECB."
"What Spain needs is a policy mix similar to that seen in the UK, with the government having a strong medium-term austerity plan in place while the central bank provides the backstop, stimulating the economy through its ultra-easy monetary policy," said the bank.
There is no sign yet that Germany is willing to drop its vehement opposition to any such action by the ECB.
Bundesbank chief Jens Weidmann repeated on Tuesday that the ECB has no legal mandate to act as a lender of last resort, and compared money printing to the deadly temptation of drinking sea water.
"Whoever believes that the current crisis can be overcome by giving up crucial principles of stability orientation, pushing current legislation aside, is wrong," he said.
A growing chorus of critics in Paris, Brussels, Rome and Madrid say Germany is cherry-picking EU law to justify its hardline stance, ignoring the ECB's duty to safeguard "economic cohesion" and the survival of monetary union under Article 3 of the Lisbon Treaty.
Comments this week by Austria's central bank governor Ewald Nowotny point to a varied spectrum of opinion within the ECB. When asked if the bank might resort to printing money to shore up bond markets, he replied "in this simple form, of course not."
Citigroup's Jürgen Michels said the careful wording is the latest sign that "the debate is shifting within the ECB's Governing Council towards a more pro-active stance given the systemic nature of the crisis."
The ECB majority can overrule the German-led bloc of hawks – and has already done so in buying around €120bn of Spanish and Italian bonds - but mass purchases or quantitative easing would risk a high-stakes political showdown with the eurozone's hegemonic power.
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