OFZ Weekly Flows - December 21, 2020

The geopolitical risks that dominated the markets early last week (in particular, reports that Russia is being accused of cyberattacks on US government agencies) spurred an outflow of nonresidents from OFZs. However, by the end of the week, these risks had dropped and the stronger ruble buoyed nonresident demand for OFZs (although because of the lag in settlement in the NSD data these inflows are not yet visible in the data). Local investors, meanwhile, have become concerned about rising inflation, due to which they are demonstrating increased appetite for inflation-linked OFZs and selling nominal issues. This was seen after the CBR meeting (see our separate note) on Friday, when, in light of rhetoric that was less dovish than previously, the selling came mostly from locals. Next year, the ministry plans to place R3.7 trln gross; we think the placement volume in 1Q21 could reach R1.2 trln as it is guiding that it will frontload next year's volumes. We project a lower key rate, ruble appreciation and lower real rates in 1Q21, which should make long-dated OFZs attractive despite the relatively high supply.> NSD data shows net outflow of R2.8 bln last week. The outflow predominated in the middle of the curve: the 4y OFZ 26227 (July 2024) saw R8.1 bln depart, while outflow in the 5y OFZ 26234 (July 2025) was R3.1 bln. (continued on next page)Meanwhile, the 6y OFZ 26226 (October 2026) and 10y inflation-linked OFZ 52003 (July 2030) both saw R4.9 bln in inflow. > R61 bln placed at last week's auction, mostly in the inflation linker, which is seeing higher demand amid the pickup in inflation and still-high real rates. This week's auction is the last of the year. Whereas many nonresidents will have already left for the Christmas holidays, local banks will likely be active at the auctions given the high budget expenditures at the end of the year. We therefore expect the floaters to be offered. Despite the fact that the Finance Ministry generally offers the inflation linker only once a month (typically at the third auction of the month), given the strong demand for it at recent auctions and in the secondary market, as well as the risks that the CBR identified at Friday's meeting, we do not rule out that it could appear again this week. > Nonresident share essentially, dropping just 0.1 pp to 22.5% over the week. With the holidays nearly upon us, foreigners will be sharply curtailing their activity this week. We thus do not expect the nonresident share of the OFZ market to significantly change in the final days of the year.