OFZ Weekly Flows - December 6, 2021. Nonresidents Keep Trimming Positions

International outflows from OFZs continued for the third week in a row last week. With R16 bln having fled the market, total outflows since the middle of November reached almost R100 bln. Such a dynamic is not surprising, given that sellers generally dominated in risk assets last week amid concerns about the new coronavirus strain, while the geopolitical outlook for Russian assets remained clouded. Weekly inflation also brought no joy for investors this past Wednesday, having spiked to 0.46% after several weeks within 0.2%, albeit the acceleration was largely driven by abnormally high inflation in a single category - vacations to Turkey. Further flows and price action will be a function of how successful the upcoming talks between presidents Putin and Biden on December 7 prove to be. Another important event to watch is monthly inflation data for November, which is to be published on December 8. The print is bound to be well above 4% in annualized terms, but should there be signs that price pressures are becoming less broad-based, the CBR could express greater confidence in its 2022 inflation forecast at the upcoming meeting on December 17 (we expect a 100 bp rate increase). This could improve sentiment toward long OFZs. Interestingly, CBR Governor Elvira Nabiullina said last week that the CBR did not expect the key rate to reach double digits next year.> Nonresident outflows reached R16 bln in the week ending December 3, mainly from short-term issues. The bulk of the outflow is attributable to the 3y OFZ 26227, which saw foreign holdings decline R13 bln. Another R4 bln left the 5y OFZ 26226 (October 2026) and R3.6 bln departed the 6y OFZ 26212 (January 2028). On the other hand, there was a R6.7 bln inflow into the 5y OFZ 26207 (February 2027) and R3.6 bln into the 10y OFZ 26239 (July 2031).> Two issues were auctioned with only 80% of the R40 bln offer placed. The auction for the 8y nominal bond was decent, with the entire amount on offer placed, no yield premium> The share of international investors in the market edged down from 19.7% to 19.6%, the lowest point since late July. We remind readers that that highest point in 2H21 was 21.1%, which was during the second week of September. The share as of the beginning of the year was 22.5%.