* Lowest bid-to-cover ratio for Bobl since May
* Portugal's one-year borrowing costs soar
(Updates throughout with detail, comment)
By Amanda Cooper
LONDON, Dec 1 (Reuters) - Germany encountered the worst demand for its five-year debt in over six months at a sale on Wednesday as low yields and growing concern over the cost to Berlin of future aid payments eroded appetite for its bonds.
Portugal's one-year borrowing costs hit euro lifetime highs at a bill sale as investors fretted Lisbon would follow Ireland and Greece in seeking emergency funding from the EU and the IMF.
The German government sold 4.13 billion euros of the re-opened 1.75 percent five-year Bobl note for an average yield of 1.73 percent and a bid-to-cover ratio of 1.1, the lowest achieved since May this year.
"Simply, market volatility is keeping a lot of investors on the sidelines. We've seen yields jumping back and forth from one day to another, not just periphery yields but also the core," Michael Leister, strategist at WestLB said.
"On the other hand, there seems to be growing concern out there that at the end of the day Germany has to support the whole euro system and will eventually have to pay the bill."
The German Finance Agency, the federal government's debt management office, as usual retained some of the issue for "market smoothing" purposes -- 0.87 billion euros this time.
However, with the total amount on offer at 5 billion euros, external bids did not cover all the paper for sale, a similar result to last week's Bund auction.
The last sale of this paper achieved an average yield of 1.65 percent and a bid-to-cover ratio of 1.6.
YIELDS CREEP UP
Although yields on the five-year Bobl are low by historical standards, having averaged 1.797 percent so far this year, compared with 2.397 percent in 2009, this was the highest yield achieved at a five-year auction since April.
This also marked the second consecutive rise in yields achieved at auction after three successive declines.
Portugal meanwhile sold 500 million euros worth of 12-month bills for an average yield of 5.281 percent, up from 4.813 percent at the previous sale of this maturity on Nov. 17.
While the bid-to-cover ratio rose to 2.5 from 1.8 at the last sale of 12-month paper, the achieved yield was the highest for the euro area, reflecting a rise in market pressure for the country to seek an international bailout.
"There is no place to hide on the curve for Portugal any more. Once again, the auction increases pressure to find a circuit-breaker to limit the damage, which is most likely to mean asking for aid," said David Schnautz, debt strategist at Commerzbank in London.
The premium investors demand to hold Portugese 10-year debt over benchmark German Bunds fell by 22 basis points to 426 basis points with traders saying the European Central Bank was buying debt of the euro zone's weakest sovereigns. The Portuguese spread hit its highest since the launch of the euro in mid-November at nearly 480 basis points.
(Additional reporting by the London government bonds team; Editing by Ruth Pitchford)