OFZ Weekly Flows - August 2, 2021. Record Nonresident Inflow

According to NSD data, R105 bln of nonresident funds poured into the OFZ market last week, marking the largest weekly inflow since the NSD started publishing this data in March 2020. Almost the entire inflow was attributable to the middle of the curve (R93.3 bln), with half of that attributable to the 10y OFZ 26235 (R49.1 bln). Meanwhile, the long end saw inflow of R15.6 bln, while the short end saw an outflow of R4.2 bln.We remain convinced that at the moment the 10y+ segment looks the most attractive, in particular the "new" 10y issues. The short end of the curve, on the other hand, continues to be pressured by hawkish CBR rhetoric. This past weekend, the FT published an interview with CBR Governor Elvira Nabiullina, who said that household inflation expectations had ceased to be anchored due to the sharp rise in food prices and that the CBR does not plan to return to a neutral policy until 2023 (in line with the key rate forecast published by the CBR after the July meeting).> Nonresident inflow into OFZs at R105 bln last week. The largest inflows came in the 10y OFZ 26235 (R49.1 bln), 7y OFZ 26236 (R11 bln) and 13y OFZ 26225 (R9.6 bln); the largest outflows were recorded in the 4y OFZ 26229 (R5.6 bln), 3y OFZ 26222 (R2.8 bln) and 12y OFZ 26221 (R1.9 bln).> Last week's OFZ auctions without set limits were successful. The Finance Ministry placed a total of R106.5 bln, the largest volume since mid-April. As expected, the highest demand was for the 8y OFZ offered. In addition, the placements took place without considerable yield premiums to the secondary market. We expect the Finance Ministry to continue conducting such "no-limit" auctions, while we think that the current high demand from various categories of investors will allow the ministry to place more than the implied weekly target of R50 bln moving forward.> Nonresident share of OFZ market expands 0.3 pp w-o-w to 19.2%, we estimate based on NSD data. Driving this was the record inflow from nonresidents, combined with the Finance Ministry significantly increasing supply. We expect these trends to continue this week and do not foresee a significant change in the nonresident share.> "New" on-the-run OFZs still lagging in terms of foreign ownership. Nonresidents added R1.26 bln in the 10y OFZ 26239 and R8.66 bln in the 8y OFZ 26237 last week. Changes in other "new" issues were insignificant.> OFZs held by local subsidiaries of foreign banks rise by R29 bln. The largest inflow was observed in the 14y OFZ 26233 (R21 bln), 8y OFZ 26237 (R13.5 bln), 15y OFZ 26240 (R11 bln) and 4y OFZ 26234 (R10.4 bln). Outflows were recorded from the "old" floaters.