OFZ Weekly Flows - June 21, 2021. Nonresident Inflow Accelerates

Nonresident inflows to the OFZ market climbed to R25.5 bln last week, underpinned by market expectations that tougher hawkish rhetoric from both the CBR and the Fed will help to contain long-term inflation risks. Against this backdrop, the long end saw inflows of R24 bln, the belly saw an outflow of R1.8 bln and the short end saw inflows of R3.0 bln. We have updated the target levels for our trade recommendations. We expect the ruble rates curves to continue flattening over the coming months amid a similar move in the US Treasury curve, more nonresident inflows into long-dated OFZs and further proactive rate hikes by the CBR. Our new target for the OFZ 26218/OFZ 26234 spread is 0 bps over the next three months.> The NSD reported nonresident inflows of R25.5 bln last week. The 3y OFZ 26227 witnessed the largest inflow (R7.8 bln), followed by the 10y OFZ 26235 (R7.6 bln) and the 14y OFZ 26233 (R6.5 bln). The largest outflows were seen in the 6y OFZ 26207 (R4.8 bln) and 5y OFZ 26226 (R3.9 bln).> The Finance Ministry held its first OFZ auction since new US sanctions came into effect against the primary market. Bids totaled R45 bln for the new 10y OFZ 26239 (July 2031), and the ministry placed R24.1 bln out of R30 bln on offer (see our note).> The nonresident share of the OFZ market edged up 8 bps last week to 18.78%. According to the NSD, the nonresident share in nominal issues rose 27 bps to 28.94%. Should the ministry this week place a volume close to that required to fulfill its annual target (R45 bln) and nonresident inflows remain comparable to those of last week, the nonresident share of the market should approach 18.9%.> The CBR has reported that nonresidents' OFZ holdings climbed by R49 bln in May. This only slightly diverges from the NSD's figure (R51 bln). The NSD estimates that nonresident inflows totaled R34 bln MTD to June 18.