OFZ Weekly Flows - April 12, 2021

The OFZ market saw a significant net outflow for the fourth consecutive week last week. This time it amounted to R32 bln, which brought the YTD outflow to R268 bln. The main factor driving the exit of foreign money last week was most likely the pickup in geopolitical tensions, while the fairly large amount placed at Wednesday's auction, where no limits were set, didn't help matters (even though demand emerged from large local market participants). The global backdrop for EM debt was benign overall last week, as US Treasury yields finally began to stabilize. Nonetheless, OFZs continued to underperform global peers. We expect much the same this week, as the geopolitical risks remain in place.> NSD estimates nonresident outflow last week at R32 bln. Moderate outflows were seen across most of the curve, while only short-dated papers and the very longest issues saw net inflows, albeit insignificant. The biggest inflows were R3.9 bln in the 4y OFZ 26234 (July 2025), R3.5 bln in the 5y OFZ 26229 (November 2025) and R3.1 bln in the 6y OFZ 26219 (September 2026), while the biggest outflows were R8.6 bln from the 3y OFZ 26227 (July 2024), R7.9 bln from the 6y OFZ 26226 (October 2026) and R7.8 bln from the 12y OFZ 26221 (March 2033).> Finance Ministry places R92 bln in two nominal issues last week. No limits were set for the auctions. The 14y OFZ 26233 (July 2035) was placed with a premium of only 2 bps (continued on next page)or so to the secondary market, while the 10y OFZ 26235 (March 2031) was placed without a premium. We expect the Finance Ministry to register new OFZ issues sometime soon - we think it is likely that one will be registered this week. Given the current landscape, we think market participants could demand a higher premium for a debut placement.> Share of nonresidents drops 34 bps to 19.36% over April 5-9. If the Finance Ministry places R77 bln at this week's auction, the average amount it will need to place per week to hit its quarterly borrowing target, and if this week sees the same outflow of nonresident money as last week, then the share of nonresidents in the OFZ market could fall to 19.1%. Meanwhile, the share excluding floaters currently stands at 30.2%.