OFZ Weekly Flows - January 18, 2021

Last week, despite a significant rise in OFZ yields - reflecting a catching up with rising yields on US Treasuries as well as EM local-currency government debt - and amid heightened geopolitical risks, there was an inflow of nonresident funds into the OFZ market. Inflation-linked OFZs saw the biggest inflows against the backdrop of accelerating inflation (consumer prices in Russia rose 0.4% in the first 11 days of January due to higher prices for certain food products, as well as due to the usual beginning-of-the-year hike in public transport tariffs). We estimate that nonresidents took up 40% of the volume of CPI-linkers placed at last week's auction. We think OFZ yields look set to continue rising early this week, driven by intensifying geopolitical risks. Given the current market conditions, we think that this week the Finance Ministry will not raise close to the weekly guidance implied by the 1Q21 borrowing plan (R97 bln per week) if it does not offer floaters, which we believe it will not do. According to officials' comments, the ministry is to generally move away from floaters and increase issuance of "nominal" issues, with an end to issuance possible depending on the market. Thus, we doubt that the share of nonresidents in the market will change significantly this week. However, we believe that real yields are currently somewhat elevated, so sluggish purchases by nonresidents will likely continue. Over coming weeks, however, a positive factor could be ruble strengthening, supported by exporters' FX selling, combined with a slowdown in price inflation. > Net nonresident inflow into OFZ market last week totaled R19.8 bln, according to NSD data. The largest inflow came in the 10y inflation-linked OFZ 52003 (July 2030), which saw R8.1 bln flow in, followed by the 4y nominal OFZ 26227 (July 2024; R7.7 bln) and the 7y nominal OFZ 26236 (May 2028; R5.8 bln). The largest outflow was attributable to the 11y nominal OFZ 26218 (September 2031), with R3.8 bln leaving, followed by the 6y nominal OFZ 26207 (February 2027; R2.6 bln).> Finance Ministry likely to aim low at this week's auction, offering the nominal 5y OFZ 26234 (July 2025) without a limit and 10y OFZ 26235 (March 2031) with a limit. We think it possible that against the background of higher demand for linkers, the 10y CPI-linked OFZ 52003 could be offered again.> Nonresident market share over January 11-15 ticks up 9 bps to 22.56%. If a volume comparable to last week's (R31 bln) is placed at this week's auctions, we believe the share could rise above 22.6%.