OFZ Auction Results - February 9, 2022. Modest Placement Size, but Negligible Yield Premiums

Today's auctions were mixed. The total placement volume was just R25 bln, which is just nearly one third of the weekly borrowing requirement implied by the 2022 target. Demand was solid only at the nominal auction, but a large part of it was due to short covering, in our view. Still, the Finance Ministry managed without tangible yield concessions, demonstrating patience in its tactics.> At the auction for the nominal 14y OFZ 26240 (July 2036), R20.7 bln was placed in total, less than at the nominal auction last week (R75 bln), as expected. Given that bids reached R76.2 (an all-time high for a July 36 auction), the bid-to-cover ratio came in at 3.7 (the highest for all OFZ auctions since December). Also on the positive side, the weighted-average yield was 9.39%, which coincided with the market offer level (+2 bps to the auction announcement level). We note, however, that the share of noncompetitive bids was untypically large at 85%, which could have represented short covering, in our view (some local accounts were likely shorting the bond after the auction announcement, judging by its underperformance yesterday). Without this interest, the issuer would have been forced to provide concessions to tap the same amount. > The CPI-linked 10y OFZ 52004 (March 2032) saw one of the weakest auctions of late, collecting only R4.1 bln in bids (versus R26 bln in January). Only R4.1 bln was placed (versus R12 bln a month ago). The weighted-average yield was 3.25%, close to the secondary-market level. The placement was distributed across only four bids. In our view, such a weak result could be explained by rather limited capacity among local real money accounts for further purchases, as they likely loaded up on nominal OFZs in recent weeks amid active international outflows.