OFZ Weekly Flows - May 24, 2021. Slight Nonresident Outflow Last Week Led by Short End

Last week, as expected, there was an outflow of nonresident funds in the OFZ market. It came to R13.8 bln and was triggered by the US inflation the week before, but due to the lag in how the data is reported, the reaction in the OFZ market was reflected in the data only at the beginning of last week. The largest outflow was recorded in short-term issues (R16.3 bln), while inflation linkers saw an inflow (R2.4 bln), reflecting market expectations for more hawkish rhetoric from the CBR amid ongoing elevated inflation. Against this backdrop, we expect the OFZ curve to further flatten and have opened a recommendation to buy the 10y OFZ 26218 (September 2031) versus the 4y OFZ 26234 (July 2025), DV01-neutral (the current spread is 65 bps, with a target of 30 bps, stop at 80 bps and horizon of two months; see our report). We think that before the June 11 CBR decision, the rhetoric from bank officials could become even more hawkish, which will increase the pressure on the short end of the curve. However, we believe that, given the significant outflow of nonresidents from issues around 10y since the beginning of the year and their currently attractive price levels, it is in this segment of the curve that gains should be the highest and, conversely, in the event of a deterioration in market conditions, that losses should be limited. Against this backdrop, we expect nonresident flows to be balanced in the near future.> Nonresident outflow last week amounted to R13.8 bln. In terms of individual issues, the largest inflow was observed in the 10y OFZ 26235 (R3.6 bln) and the 8y OFZ 26224 (R3.5 bln) and the largest outflow in the 3y OFZ 26227 (R6.7 bln), the 6y OFZ 26207 (R4.5 bln) and the 3y OFZ 26222 (R3.8 bln).> Last week, R48 bln was placed at OFZ weekly auctions, in line with weekly average required to fulfill 2021 borrowing plan. We believe that at least until June 14 - when the new US sanctions on the primary OFZ market are due to come into force - the Finance Ministry will continue to offer the residual amounts available to be placed for already registered issues, with a target of R50 bln per week.> Nonresident share of OFZ market decreased by 15 bps over last week to 18.65%. Meanwhile, their share of nominal OFZs decreased by 27 bps to 28.68%. We believe that in the near future these shares will be mostly flat.