OFZ Auction Results - June 30, 2021. Finance Ministry Decides Not to Sacrifice Pricing

Following this week's hawkish remarks from the CBR, the Finance Ministry today managed to place just a tiny share of its weekly borrowing needs. This outcome leaves us with ambivalent thoughts. On one hand, the auctions suggest that local demand for long-end bonds will likely remain subdued at least until there is more clarity on the June inflation figure. On the other, the ministry appears to have taken a more conservative approach with regard to pricing levels than it did earlier this year, which should mitigate pressure on the long part of the off-the-run curve (consisting of bonds tapped before June 14, the start date for the new sanctions) for the time being. Overall, today's auctions add conviction to our call for further bear-flattening of the curve (we expect the 4s10s spread to come down toward 0 bps). Next week, we think the ministry could test demand for the recently announced 4y issue given the lack of appetite for longer-term OFZs for several weeks in a row. > Demand for the 10y OFZ 26239 (July 2031) came in at R28 bln, down from R45 bln for the same bond two weeks ago. The allocation volume also decreased, to R8.5 bln this time from R24 bln on June 16. Despite the worse market conditions, the ministry set the cut-off at 7.31%, in line with the previous auction (and just 8 bps over the off-the-run curve, which we consider to be a quite moderate concession). Two thirds of the placed amount was taken by investors at 7.30%. The three largest satisfied bids accounted for nearly half of the placement. The rest was distributed in small tickets.> At the second auction, for the new, on-the-run 15y OFZ 26240 (July 2036), all bids were rejected. The ministry did not disclose demand figures.