OFZ Weekly Flows - December 14, 2020

The OFZ market was generally more active last week than the week before. Nonresidents were picking up more paper, helped by a strengthening ruble. According to the NSD, nonresident inflows totaled R22.8 bln last week. Geopolitics will likely dominate the market today and tomorrow. Media have reported allegations that Russian hackers have hacked US government servers. Should the situation remain calm, we think nonresident purchases are likely to resume on Wednesday. > Nonresident net inflow reached R22.8 bln last week. This was the largest influx for three weeks. Turnover was again focused in the belly, specifically issues maturing in 2024-27, although only R9.7 bln was purchased on a net basis. Last Tuesday, some R6.4 bln of the OFZ 26226 (October 2026) was sold off while the OFZ 26227 (July 2024) was well bid. Nonresidents were also picking up the OFZ 26207 (February 2027), OFZ 26229 (November 2025) and OFZ 26232 (October 2027). In the segment with papers maturing in 2030-39, purchases totaled R12.2 bln, with virtually no sales. The largest purchases went through in the OFZ 26228 (April 2030) and OFZ 26230 (March 2039), with both seeing R3 bln.> Finance Ministry places R29 bln at last week's auctions. Demand for the 15y OFZ 26233 (July 2035) did not turn out to be any larger than when it was last placed in November, while demand for the 7y OFZ 26236 (May 2028) was quite weak. It is possible that local banks are opting to wait for the floaters to be issued at the end of this month. Nonresident demand for the 7y paper was likely limited by the issue's low liquidity. With just R21 bln in circulation after last week's placement, it appears unlikely that foreign demand for the issue will increase anytime soon. Based on NSD data, it appears that foreigners also stayed on the sidelines for the auction of the 15y paper (over the period from Wednesday through Friday they bought just R0.2 bln in the issue). > Nonresident share edges 0.1 pp higher to 22.6% last week. Nonresidents may shy away from buying OFZs early this week amid the reemergence of geopolitical risk. If harsh rhetoric related to the hacking accusations emerges, selling in OFZs by foreigners could ensue. In that case, the share might decline to 22.4% this week. If the geopolitical risks abate, the nonresident share in the market could climb to 22.7% by the end of this week. If the CBR delivers what is now seen as an unexpected rate cut - the consensus is now for the rate to be left on hold -the possible nonresident purchases will be reflected only in the following data, as nonresidents prefer to buy paper with T+1 to T+3 settlement.