Fixed Income. OFZ Weekly Flows - July 12, 2021. Nonresident Bid for OFZs Remains Sluggish

Nonresident demand for OFZs was again not very high last week at R14.5 bln. The highest demand was seen in the belly, which registered a net inflow of R12.3 bln, while the short end saw inflow of R8.5 bln and the long end outflow of R6.0 bln. Year-to-date, intermediate bonds have suffered the most on the curve, accounting for almost half of the outflows. We expect the nonresident share in this segment to gradually recover to average levels from below average now. Inflows at the long end were last week restrained by the Finance Ministry's offer in this segment as well as by sharp ruble weakening.However, despite the usual summer lull, we expect nonresident inflows to begin climbing this week, as Euroclear has begun settling new OFZ issues. Until last Thursday, new OFZ issues with undefined issue limits (registered after June 14, when the latest US sanctions came into effect) were not being cleared for technical reasons. We believe the resumption of clearing should encourage local demand for the Finance Ministry's auctions and increased secondary market liquidity for the new issues. However, inflows could be curbed this week as it is the last week before the CBR's blackout period begins and we can expect new comments from the regulator that might put pressure on the short end. US inflation data for June is also due and could worsen the external backdrop for the bond market.> Nonresident inflows reached R14.5 bln last week. The largest inflows were registered in the 5y OFZ 26226 (R5.7 bln) and the 8y OFZ 26224 (R5.0 bln). The largest outflows were seen in the 7y OFZ 26212 (R5.4 bln) and 13y OFZ 26225 (R4.8 bln).> The Finance Ministry placed R15 bln out of R20 bln offered. We consider the primary supply to be a low risk for the secondary market, as this weekly target doesn't look onerous. The ministry has clearly adopted a more conservative strategy since the new sanctions came into effect. It is testing the market in various segments and has ceased providing premiums of more than 2-3 bps, which is bringing less pressure than in 1Q21.> The nonresident share of the OFZ market rose 10 bps last week to 18.95%. The nonresident share of nominal issues alone climbed 22 bps to 29.2%. We anticipate further inflows this coming week, and we expect the share to rise to 19.15%.