OFZ Auction Results - August 11, 2021. Finance Ministry Again Exceeds Weekly Borrowing Target at Auctions

Today's auction results were strong again, despite the deteriorating external conditions and a significant rise in OFZ yields in recent days. The Finance Ministry placed a total of R111 bln, with the volume placed in the 15y paper only slightly smaller than that in the 8y paper, though demand for the latter was, as expected, higher.Separately, we highlight growing demand from nonresidents for the "new" on-the-run OFZs (shown by the NSD data), which, in our view, has been a key factor behind the strong auctions over the past month. In the issues offered today, the share of nonresidents before the auctions was 27% in the 8y OFZ (R27.3 bln) and 25% in the 15y OFZ (R10 bln), respectively. We continue to give preference to the "new" issues, especially in the 8-10 year segment, where the yield premium to the "old" curve is 15 bps on average. We believe that this premium will inevitably narrow given that the "new" OFZs become identical to the "old" ones once the Finance Ministry stops placing them in the primary market (see our recent report, "'New' OFZs: Early Bird Gets the Worm.") Nevertheless, the Finance Ministry's readiness to allow considerable yield premiums to the "old" curve could be a cause for caution for market participants.Following today's auctions, the Finance Ministry needs to place R857 bln overall (which implies a weekly target of R45 bln) and only R170 bln net, which, in our view, should not exert significant pressure on the secondary market. Next Wednesday (August 18) will see a R290 bln redemption, and we think some of the holders may want to reinvest the funds in the short-term segment so as to not change the structure of their portfolios. Thus, over the next two weeks we would expect to see the 4y OFZ 25085 (September 2025) offered.> At today's first auction, R56 bln was placed in the 8y OFZ 26237 (March 2029, 6.70%), while bids were almost double that at R108 bln. The weighted average yield was 7.15%, meaning a 3 bp premium to the secondary market for the "new" OFZs and an 18 bp premium to the "old" curve. The range of accepted bids was narrow, between 7.12% and 7.16%.> At the second auction, for the 15y OFZ 26240 (July 2036, 7.00%), R55 bln was placed. Demand came in expectedly weaker than for the 8y paper and amounted to only R66.2 bln. The yield premium was 2 bps to the secondary market and 17 bps to the "old" curve.