OFZ Weekly Flows - December 13, 2021. Outflows From Nonresidents Seen for Fourth Straight Week

Last week, nonresidents removed R31 bln from the OFZ market, bringing outflows over the last four weeks up to R125 bln. This trend has been attributable to high inflation and elevated geopolitical tension. We expect inflows to resume this week given the somewhat of an improvement in the geopolitical backdrop following the Putin-Biden video call. However, given that investors may be taking a wait and see approach ahead of Friday's CBR meeting (at which we expect a 100 bp rate hike), we do not expect the flows to be significant.> Nonresident outflows totaled R31 bln last week. Although outflows were observed from all segments on the curve, the heaviest withdrawals came from the short end (R14 bln removed), while R8.6 bln was removed from medium-dated issues and R8.2 bln from the long end. The biggest withdrawal came from the 2y OFZ 26223 (-R10.9 bln), then the 6y OFZ 26212 (-R6 bln) and the 8y OFZ 26228 (-R3.5 bln). Net inflows, meanwhile, were only seen in the 10y OFZ 26239 (R7 bln).> Last week's auctions saw just one issue placed, the 10y OFZ 26239 (July 2031), to the tune of R30 bln. Demand at the auction totaled R53.5 bln, which was sufficient for the full volume on offer to be placed.Due to R350 bln worth of redemptions slated for this week, we think at this week's auction the Finance Ministry could place the 4y OFZ 25085 (September 2025). We also think that, thanks to the improved market backdrop, the volume on offer could be increased this week in order to get close to meeting the quarterly plan.> Nonresident share down 20 bps to 19.4%. On Wednesday, the OFZ 25083 comes due (R350 bln), which is mostly held by local investors. Thanks to this redemption, we expect the nonresident share of the market to tick higher to 19.8% this week, assuming insignificant changes in net holdings.