OFZ Weekly Flows - January 31, 2022. Nonresidents Continue to Trim Positions When Market Recovers

Nonresidents continued to trim their positions in OFZs last week despite a slight ease in geopolitical tensions and support from the Finance Ministry's decision to skip its weekly auction. They cut their holdings by R53.3 bln last week, bringing the outflow over January to R123 bln. We expect the share of nonresidents in OFZs to continue dropping until there is an improvement in both Russia's macro indicators (in particular, a sustained slowdown in inflation) and the geopolitical backdrop. Until then, we think foreign investors will continue to cut their positions and take profit during periods of recovery. We estimate that their share in the market will fall to 18.6% this week, from the current 18.8%.> A R53.3 bln outflow of nonresident money from OFZs last week. The short end of the curve saw outflow of R14.3 bln, the middle R23.0 bln and the long end R15.8 bln. The only two nominal issues that saw a net inflow were the 2y OFZ 26223 (R3.7 bln) and 5y OFZ 26226 (R3.5 bln). The biggest outflows came from the 5y OFZ 26207 (R12.4 bln), 9y OFZ 26239 (R8.1 bln) and 11y OFZ 26221 (R5.4 bln).> Nonresident share drops 0.3 pp to 18.8%. The share of nonresidents in the OFZ market fell below 19% for the first time in nearly seven years. However, the ongoing decline has been driven in part by a significant change in the structure of the market, particularly the growing share of issues with a floating coupon rate, which are more popular among local investors. The Finance Ministry has indicated that it may bring back OFZs with a coupon tied to the RUONIA rate, which have not been offered since 4Q20. However, a deputy minister stated not long ago that the share of floating-rate paper should not exceed 25% over the medium term, and the share already stood at 26.6% as of the end of last year.