OFZ Weekly Flows - January 17, 2022. Nonresident Share Drops Slightly, While Foreign Banks' Subsidiaries See Substantial Outflows

Nonresident outflows from the OFZ market totaled just R3.2 bln last week, while foreign banks' subsidiaries reduced their holdings by R217 bln. Yields rose 70-110 bps during the week. We estimate that the geopolitical premium in 10y OFZs has increased by 100 bps since the start of November, exactly in line with the degree to which the yields on long-dated OFZs have outpaced EM peer yields. This week, we do not expect nonresident holdings to improve much; in fact, we expect the nonresident share to slip below 19.3% this week due to the outflows seen at the end of last week stemming from geopolitical developments, given the lag in the reported data.> Long end most resilient to outflows. Nonresidents cut their holdings by R7.2 bln at the short end and R2.5 bln in the belly, while the long end was little changed. Foreign banks' subsidiaries reduced their holdings by R58.4 bln at the short end, R104.2 bln in the belly and just R34.3 bln at the long end. > The largest inflows of nonresident funds were registered in the 11y inflation-linked OFZ 52004 (+R2.0 bln) and the 7y OFZ 26237 (+R1.8 bln). The largest outflows were seen in the 1.5y OFZ 26215 (-R2.0 bln) and the 0.5y OFZ 26209 (-R1.4 bln).> OFZ auctions were mixed. The nominal auction was, unsurprisingly, disappointing, whereas the auction for the CPI-linker was among the strongest in several months. The 7y OFZ 26237 (March 2029) collected R38 bln in bids, the lowest volume since September. The ministry placed R16.5 bln. The auction for the CPI-linked 11y OFZ 52004 (March 2032), was the bright spot, with R26 bln in demand and R12 bln placed (see our note).> Nonresident share edged 0.6 pp lower to 19.4% last week. We anticipate more pronounced outflows this week due to the lag in the reported data, which will reflect the outflows registered at the end of last week stemming from the geopolitical developments. We expect the share to fall below 19.3% this week.