OFZ Auction Results - July 21, 2021. Strongest Auction in More than a Month

Today's 10y OFZ auction was successful, supported by improved global risk sentiment, the conservative tactics of the Finance Ministry in the primary market recently and an appreciating ruble amid media reports on the US and Germany having reached an agreement over Nord Stream 2. With an almost threefold oversubscription, the entire R20 bln offer was placed without a yield premium to the secondary market. The last time an OFZ auction turned out so strong was back in June, the last week before the new US sanctions kicked in. Meanwhile, the increased primary demand for the 10y OFZ suggests that the long part of the curve remains a safe place to be ahead of the CBR decision on Friday, which will likely feature hawkish rhetoric and could still push front-end yields higher. On the other hand, this also means that the Finance Ministry will likely raise offer volumes for long issues in the upcoming weeks (R50 bln is the weekly borrowing need for the remainder of the year), which could limit the scope for long yields to tighten.> Bids for the 10y OFZ 26239 reached R58 bln today, which allowed the Finance Ministry to fully place the R20 bln on offer at a 7.32% yield, flat to the secondary market. Another indication of how strong the auction was is the relatively large share of noncompetitive bids (33%). The largest filled bid was R5 bln, and the four largest orders accounted for 75% of the placement. Amid the impressive results of today's auction, we expect foreigners to increase their positions in the OFZ 26239 in the secondary market, especially taking into account that the issue still offers a 14 bp yield pick-up over the "off-the-run" curve. Before the auction, international accounts held 3.5% of the issue, according to the data of the National Settlement Depository. Local subsidiaries of foreign banks held 2.9%.