OFZ Auction Results - November 18, 2021. Demand Better Than Expected for the Nominal Issue

The 10y fixed-coupon paper had a stronger showing at yesterday's auction than we had anticipated - the market managed to digest the full amount offered without a concession. However, the results were lackluster compared with last week's auction, which we attribute to the lingering uncertainty over geopolitics and weekly inflation. Both of these factors could still play out either positively or negatively, and both could trigger elevated volatility.> Demand for the 10y OFZ 26239 (July 2031) totaled R43.5 bln, and the entire R20 bln offered was placed close to the prevailing levels in the secondary market. The weighted-average yield was 8.27%. There were 40 bids accepted in total, with the three largest ones covering more than half of the volume issued (R11 bln). The non-competitive share dropped from 90% last week to 28%, a sign that short positions in the bond have become lighter and that there is now less conviction in the market regarding the outlook for yields.> The 11y CPI-linked OFZ 52004 (March 2032) attracted little interest. With only R9.8 bln in bids, just R1.3 bln was placed. The weighted-average yield was 3.07%, in line with the secondary market. We think the main reasons for the relatively weak demand may have been the bond's low current yield (this month its notional will be indexed by August inflation, which was only 0.3%) and the limited capacity of local real money accounts to expand their holdings. As the current yield will rebound in December and January due to the pickup in monthly inflation in September and October (to 0.6% and 1.1%, respectively), demand for the instrument could also recover.