OFZ Auction Results - March 3, 2021

It seems the Finance Ministry believes that current levels are too expensive to actively place OFZs. It not only limited the nominals on offer today to a 5y issue, but also chose not to offer a yield premium at the auction. In addition, Interfax has reported that the Finance Ministry is considering the possibility of reducing the volume of OFZ borrowing penciled in this year by R0.5-1.0 trln from the current R2.7 trln net (R3.7 trln gross). In general, both the news and the results of today's auctions are positive for the OFZ market, and we reiterate our recommendation to buy the 20y OFZ 26230, which we opened in recent days. A decision to cut the planned OFZ borrowing this year could be the result of the recent rise in US Treasury yields. Perhaps the Finance Ministry believes that further growth in dollar yields may negatively affect the OFZ market and therefore is considering a decrease in supply now. At the same time, it will continue to offer paper around current levels, so we would not expect a significant decrease in yields from current levels.> At the auction for the 5y nominal OFZ 26234 (July 2025), which had no set limit, bids totaled R152 bln, and the ministry placed R90 bln. The healthy demand enabled the ministry to place the highest amount of nominal OFZs at a single auction since May 20, 2020, when it raised R112 bln in the then 7y year OFZ 23232 (Oct 2027). Today witnessed substantial demand from local banks, we believe. The ministry had not placed this issue for quite a long time (the last occasion was on February 10), and the yield has risen 45 bps in the interim. The ministry opted against providing a premium at the auction, as it did not deem the current level to be low.> Demand for the 10y inflation-linked OFZ 52003 (July 2030) totaled R41 bln (with R14 bln placed), which was in line with expectations. This means that the issuance volume rose back to its more usual level after having been much lower last time the paper was issued. A small premium of 1-2 bps was provided in terms of real yield. Given what appears to be a rather limited investor base for this paper, demand remains restrained despite the still-high inflation. In light of the fact that inflation will likely slow in the coming weeks, over the next month or two we think the Finance Ministry will return to its previous practice of offering the paper only once per month.