Low demand and sky-high yields at recent treasury bill auctions are threatening the future of the government's plan to finance next year's budget deficit with state securities, analysts said Wednesday.


"There has been one failure after another at auctions lately," said Alexander Ivanishchev, an analyst with Grant Financial Center.


The government took another pounding Tuesday, when it sold just 51.5 percent of a 400 billion ruble ($129 million) issue of six-month treasury bills at a record annualized yield of 308 percent.


Even the most popular type of state security, the three-month treasury bill, sold at a sky-high yield of 293 percent at auction last week. The Central Bank's refinancing rate, in contrast, is currently set at an annual 170 percent.


Ivanishchev said the ruble's rollercoaster ride in October -- when it crashed to almost 4,000 per dollar only to recover shortly afterward -- was largely to blame for turning investors' attention away from securities toward speculating on the currency markets.


Another reason for the market's current crisis is a wait-and-see mood among dealers following the appointment of Finance Minister Boris Panskov and First Deputy Prime Minister Anatoly Chubais to take charge of the economy, said Mstislav Afanasyev, deputy director of the governmental Center for Economic Reform.


The success of the government's securities program is crucial to the financing of next year's budget deficit, which is forecast in the draft budget at 7.8 percent of gross domestic product.


The government has pledged to fund the revenue shortfall primarily by issuing securities, rather than resorting to inflationary Central Bank credits. But economists say the target of raising over 40 billion rubles worth of the bonds in 1995 can only be met if the government expands the existing program by improving the investment climate and issuing new types of securities.


The current annualized yield on the bonds, however, could cripple the government's bond program next year when it has to redeem the securities, analysts say.


"The results of the latest auctions enable the government to patch up today's financial holes, but they could make the bond program too expensive next year," Ivanishchev said. "The government is pulling itself into a debt trap. It's like a pyramid."


Ivanishchev said the government, faced with having to pay out higher and higher dividends, would be forced to sell even more securities at an even higher yield.


The government is already due to pay out dividends of around 3 trillion rubles in January, said Yevgeny Malinovsky, securities analyst with the RINACO-Plus brokerage firm.


"Until January, the government won't have problems with financing the bond program, but next year it may become problematic," Malinovsky said.


Dealers, however, noted that as soon as there is any spare capital available on the financial markets, it will most likely go towards state bonds, because the default risk is minimal for government-backed securities.


"They always redeem the paper," said Malinovsky of RINACO-Plus. He also said banks have finally begun selling hard currency, which is beginning to flow into the state securities market.


"There is a trend toward lower yields on the secondary market that may continue, at least for a while," he said, adding that the 308-percent yield of Tuesday's issue of six-month bonds had already fallen to 277 percent in secondary trading Wednesday.