OFZ Weekly Flows - July 26, 2021. Biggest Weekly Foreign Inflow Since Last November

Last week saw a significant inflow of foreign money into the OFZ market. The NSD registered a R44 bln net inflow of nonresident investment, with much of this coming into 4-6y issues. This likely owed in large part to the slowdown in weekly inflation to zero last week, as well as expectations that the CBR would take a proactive approach at its meeting on Friday. Another supportive factor was the recovery in risk appetite across global markets.We believe the nonresident inflow will continue in the very near future, but that the foreign share in the market will not rise significantly. Even though inflation appears to be slowing, we think the CBR's more hawkish than expected rhetoric on Friday will constrain the inflow of foreign money into OFZs (see our review). In addition, the Finance Ministry may be getting ready to start ratcheting up its issuance.> Last week saw a R44 bln net inflow of nonresident money into OFZs. The biggest net inflows were in the 4y OFZ 26234 (R18.5 bln), 6y OFZ 26207 (R9.2 bln) and 5y OFZ 26219 (R5.9 bln). Net outflows were registered in the 1y OFZ 26209 (R2.6 bln) and 4y OFZ 26229 (R3.7 bln).> Finance Ministry placed the entire R20 bln on offer in the 10y OFZ 26239 at last Wednesday's auction. Demand for the issue amounted to R58 bln. We believe the upcoming redemption of the R290 bln OFZ 26217 on August 18 should provide background support for the primary market in the coming weeks. However, we also think it is likely that the Finance Ministry will step up its issuance of long-dated paper in the next few weeks, in order to keep from getting too far behind the pace required to meets its borrowing targets (to hit its full-year target, it needs to place around R50 bln per week).> According to the NSD, the share of nonresidents in OFZs climbed 28 bps to 19.16% last week. We do not expect to see their share change much anytime soon. > According to the CBR, the nonresident share rose 20 bps to 19.7% in June. The central bank recorded a R65 bln net inflow of nonresident investment for the month. Meanwhile, the NSD reported a R40 bln inflow. We think the significant difference may have owed to the lag in the NSD data (due to the Т+1 and Т+2 settlement) or to this data reflecting more local depositories. The NSD reported an inflow of R17.7 bln over July 1-23.