OFZ Auction Results - July 15, 2021. Lackluster Demand

The results from yesterday's auction were quite weak on balance. Only two thirds of the Finance Ministry's modest R20 bln offering was placed. The yield premium was only moderate for the 8y issue but rather hefty for the 15y paper. It will be interesting to see whether the Finance Ministry changes its approach at upcoming auctions, as borrowing is not on track to meet the quarterly target. Given the large upcoming redemption in mid-August (of the R290 bln OFZ 26217) and the increased trading activity in short-term nominal issues, we think the ministry could test demand for the new 4y OFZ 25085 (September 2025) in the coming weeks.> The 8y OFZ 26237 (March 2029) received a total of R20 bln in bids, which allowed the Finance Ministry to place the entire R10 bln offered. The weighted-average yield was 7.27%, which was 3 bps above the secondary market. We consider this a moderate concession compared to what we have seen so far this year.> Yesterday's auction also saw the debut of the 15y OFZ 26240 (July 2036). Demand was weak at just R7.7 bln, and only R4.2 bln of the R10 bln on offer was placed. The weighted-average yield was 7.40%, which was close to where the OFZ 26238 (May 2041), the longest outstanding nominal issue, was quoted and some 13 bps above the secondary market curve.