OFZ Auction Results - September 15, 2021. Mixed Bag as 20y Auction Disappoints

The total volume placed today came to R63.4 bln, well above the average weekly borrowing requirement (R30-35 bln). This brought QTD borrowing to R742 bln, which now exceeds the quarterly target of R700 bln. On the downbeat side, demand for both papers auctioned today decreased versus similar auctions two weeks ago, while the 20y bond saw a tangible discount. The results should facilitate a further steepening of the 10s20s spread, in our view. However, the bigger issue for the market is whether the Finance Ministry will be eager to resume auctions with set limits in the next several weeks. While the pace of borrowing looks supportive for that, market participants still remain skeptical. In our view, a resumption of auctions with limits should start soon, especially bearing in mind the substantial outperformance of non-oil revenues this year (see our report), which would make for a positive backdrop for long OFZs in 4Q21.> At the first auction (10y OFZ 26239, July 2031), a total of R45.5 bln was placed, while demand reached R68.0 bln. Bids were lower than at the previous auctions for the same paper (they were above R100 bln at each of the auctions in August). Still, the weighted-average yield was 7.19%, implying a tiny 1 bp premium to the secondary market. Most likely, one third of the total volume was taken up by one participant: the two largest filled competitive bids were of equal size: R6.2 bln (one filled at 7.18%, the other at 7.20%). The non-competitive share was 13%. > The 20y OFZ 26238 (May 2041) collected R26 bln in bids, also below the August average. There was R18 bln placed at a weighted-average yield of 7.50% - a new high for the bond. That implied a 3 bp yield pickup over the secondary curve, on par with the auction on September 2. It is worth mentioning, though, that the level was 7 bps higher than when the auction announcement was made the day before.