OFZ Weekly Flows - March 9, 2021

Despite a series of positive headlines regarding OFZs last week, the strong growth in US Treasury yields (more than 13 bps on the 10y) restrained the decline in OFZ yields and curtailed nonresident inflows. Regarding the latter, whereas the net change was not significant (an outflow of just R5.6 bln), significant fluctuations were seen on a day-to-day basis. At the beginning of last week, a positive factor was that the US sanctions announced against Russia did not contain measures targeting financial markets. Later, meanwhile, headlines emerged that the Finance Ministry was considering reducing its borrowing plan for this year by R0.5-1.0 trln. Also buoying the market was the fact that among nominal issues only one short-dated issue was offered last week, which supported the long end of the curve. However, things deteriorated toward the end of the week when UST yields resumed their climb after a speech by Jerome Powell, while a Bloomberg report indicated that the US and UK were considering expanding sanctions against Russia - including potentially against sovereign debt. However, the losses in the OFZ market this report inspired were later retraced when the market realized that it contained nothing new. We do not expect significant shifts in nonresident holdings this week, the final week before the blackout period for the March 19 CBR meeting. (continued on next page)> According to NSD data, the net nonresident outflow last week totaled R5.6 bln. The biggest net inflow was seen in the 4y OFZ 26234 (July 2025), in which R9.6 bln entered. Next was the 9y OFZ 26228 (April 2030), in which inflow totaled R6.0 bln and the 14y OFZ 26233 (July 2035), into which R5.4 bln flowed in. The biggest net outflow, meanwhile, was in the 5y OFZ 26229 (November 2025), from which R13.3 bln exited, and the 7y inflation-linked OFZ 52002 (February 2028), which saw R7.8 bln leave. The 6y OFZ 26219 (September 2026) saw an outflow of R5.7 bln.> Last week two issues were offered (a nominal and an inflation-linker), with only R104 bln sold. The nominal was issued without a premium to secondary quotes, while the inflation-linked issue saw an insignificant 1-2 bp premium in terms of real yield. We think the ministry might opt for just one medium-dated nominal issue this week, perhaps the 7y OFZ 26236 (May 2028).> Nonresident share down 20 bps to 21.51% over March 1-5. We think that if the Finance Ministry manages to place around R50 bln at tomorrow's auction the nonresident share this week will remain around 21.5%.