Fixed Income. OFZ Weekly Flows - June 28, 2021. Nonresidents Lighten Positions in Short-Dated OFZs

The OFZ market saw a R7 bln net outflow of nonresident investment last week despite positive market conditions, a strengthening ruble and growing risk appetite. The outflow stemmed entirely from the short end, which saw R32.5 bln exit, while the middle of the curve saw a R25.7 bln inflow and the long end a more modest R0.7 bln influx. Foreign flows might be restrained this week as well, as the CBR made some fairly hawkish comments at the end of last week, and we should see this reflected in the data for early this week. Moreover, trading activity is likely to be fairly muted with US jobs data looming. In light of the CBR's hawkish rhetoric, we have raised our year-end forecast for the key rate to 6.50% (see our recent report).> NSD registers R7 bln net outflow of nonresident money last week. The biggest outflows were registered in the 3y OFZ 26227 (R16.5 bln) and 4y OFZ 26234 (R13.1 bln). The biggest net inflows were in the 5y OFZ 26229 (R10.7 bln), 8y OFZ 26224 (R7.3 bln) and 1y OFZ 26220 (R5.6 bln).> Only R25 bln of R50 bln offered in 20y paper placed at last week's auction due to low demand. The Finance Ministry now needs to place R45 bln per week on average to meet its borrowing target for the year, though it is worth keeping in mind that trading activity typically drops off during the summer and that the ministry has not registered any other new issues. We expect only the 10y OFZ 26239 (July 2021) to be offered up at this week's auction, likely with a limit of R30-35 bln.> Share of nonresidents drops 8 bps to 18.76% last week. The share of nonresidents in nominal issues alone fell 6 bps to 28.88%. If the Finance Ministry places an amount at this week's auction close to what it placed at the last two auctions - the first since the US sanctions came into effect - and if nonresident outflow is registered at the short end of the curve early this week reflecting the CBR's hawkish comments, we would expect to see the share of nonresidents in the OFZ market as a whole drop 10 bps to 18.66%.