OFZ Weekly Flows - December 7, 2020

The OFZ market remained relatively calm last week. The rally in the ruble only provoked a small inflow of nonresident money, which the National Settlement Depository estimated at a net R7.9 bln. With the recent uptick in inflation, it appears that investors are waiting to get some signals from the CBR before they start buying again. This is likely to be the last week of active trading before the year-end holidays. The CBR will hold a conference on December 9-10. If it signals that it is prepared to cut the key rate at this month's meeting, we would expect the inflow of foreign money to accelerate.> NSD registers a R7.9 bln inflow of nonresident investment last week. The middle of the curve has continued to see most of the action, even though the slope has become rather steep. The biggest net inflows last week were R6.4 bln in the 6y OFZ 26207 (February 2027) and R5.4 bln in the 5y OFZ 26234 (July 2025). The floating-rate 4y OFZ 29006 (January 2025) saw a R3.8 bln inflow of foreign money, which is worth noting because floaters are usually only able to find demand from local market participants. The biggest outflows were R6.7 bln from the 4y OFZ 26227 (July 2024) and R4.1 bln from the 1y OFZ 25083 (December 2021).> At last week's auction again just R18 bln placed. Demand for nominal paper remains weak, especially at the long end of the curve. (continued on next page)We expect the Finance Ministry to refrain from offering up a floating-rate issue until the auction on December 23, when nonresident activity should be extremely low. If the CBR provides clear signals on its upcoming moves, the Finance Ministry may be able to place R40-50 bln at this week's auction.> Share of nonresidents flat w-o-w at around 22.5%. We would expect the share of nonresidents in the OFZ market to climb close to 23% if the CBR signals a rate cut in December or edge up to just 22.55% if it doesn't.