OFZ Weekly Flows - August 16, 2021. Nonresident Inflows into 'New' Issues Continue

The net inflow of nonresident money into the OFZ market shrank to just R19 bln last week and was concentrated in the "new" issues. We believe the growing demand for "new" issues among nonresidents has been one of the main reasons the Finance Ministry has been able to place such high volumes at its recent OFZ auctions (it placed R111 bln in total last Wednesday, the most since April). Another factor that has helped the Finance Ministry at its auctions, giving it more flexibility, is that it doesn't have too far to go to reach its borrowing target for the year - it only has to place around R870 bln gross and just R175 bln net. We still find the "new" OFZs attractive - they trade 15 bps above the "old" curve and are being placed with premiums of around 3 bps to the secondary market. We think the spreads will narrow to the levels of the "old" curve once the issues have been placed in full (see our report). We expect the inflows into the "new" issues to continue this week. The "old" curve remained under pressure last week amid the challenging external backdrop and the resumed rise in Treasury yields in particular.> According to the NSD, last week saw a R19 bln net inflow of nonresident money. The long end of the curve saw inflow of R33 bln, while the middle saw outflow of R9.3 bln and flows at the short end were balanced. The biggest net inflows were in the 10y OFZ 26239 (R22.6 bln), the 20y OFZ 26238 (R4.0 bln) and the 8y OFZ 26237 (R3.1 bln), while the biggest outflows were from the 6y OFZ 26207 (R9.5 bln) and 6y OFZ 26232 (R4.2 bln).> The Finance Ministry managed to place R111 bln in total last week, the most since April. The amount placed in the 15y issue was only slightly smaller than the amount placed in the 8y issue, although demand for the former was considerably lower. We think it is possible that the 4y OFZ 25085 (September 2025) will be auctioned off either this week or next, as this week will see a R290 bln OFZ issue redeemed, and investors may be inclined to reinvest the proceeds at the short end of the curve to keep the structure of their portfolios intact. In any case, at this week's auction we expect the Finance Ministry to place a volume significantly exceeding R45 bln, which is the amount it now needs to place per week to hit its annual borrowing target (see last week's OFZ Auction Results).> NSD shows nonresident share at 20.07%, little changed w-o-w. Despite the inflows of foreign money, we do not expect the share of nonresident investors in the OFZ market to move much in the coming weeks due to the increase in issuance.> SIFIs took in most of the OFZs placed in July. In its latest Financial Market Risks Review, the CBR indicated that the main buyers at July's OFZ auctions were SIFIs (they took in 51.5% of the total volume issued in July) and that the share of nonresident purchases shrank (down 0.7 pp to 21.7%). In absolute terms, nonresident investors' purchases at auctions decreased by R7.8 bln m-o-m in July, to R33.5 bln, with 88% of this amount attributable just to the July 30 auction (where they purchased R30 bln of the R105 bln in OFZs placed, the most nonresidents have purchased at an auction so far this year). We suspect nonresident participation has also been high at the auctions so far in August.