OFZ Weekly Flows - November 1, 2021. Nonresidents Selling in Belly, Maintaining Positions in 10y Segment

As we correctly predicted in the previous edition of OFZ Weekly Flows, last week's data from the National Settlement Depository showed a tangible outflow of foreign money; in net terms, R64 bln left the OFZ market. Around 85% of the outflow was from the 4-6y segment of the curve, whereas the 10y segment even saw a small net inflow of R2 bln amid rotation from "old" into "new" OFZs. This may be a sign that nonresidents still see the CBR's policy as credible and expect inflation in Russia to be kept under control over the longer term. The NSD data also showed a marginal inflow of R7 bln on Friday, which was likely attributable to dip-buying by internationals on Wednesday before the weekly inflation report (given the two-day lag in settlement). However, as the inflation data proved disappointing, it is likely that the inflow has reversed, and we expect the NSD's data for the following days to show this. This week, we believe international flows could be muted due to the drop in activity among local investors in the run-up to the long weekend in Russia that begins on November 4. We think some further outflows from the belly of the curve could be registered at the beginning of next week, echoing what we expect to be another elevated weekly inflation print on Wednesday.> Last week, internationals were most actively pulling money from the 6y OFZ 26207 (February 2027; -R16.9 bln w-o-w in nominal terms), the 4y OFZ 26234 (July 2025; -R16.1 bln) and the 12y OFZ 26233 (July 2035; -R13.7 bln). In the 10y segment, the "old" OFZ 26235 (March 2031) saw R13.1 bln outflow, but the "new" OFZ 26239 (July 2031) saw an inflow of R14.1 bln in foreign money. > At last week's OFZ auction, only one bond was auctioned off - the 11y CPI-linked OFZ 52004 (March 2032). Just R6.8 bln was placed out of R10.1 bln offered, as the issuer decided to set the cut-off at 3.06% (versus 3.10% at the auction two weeks ago). However, demand was disappointing, at R16.8 bln (versus R25.3 bln and R28.9 bln at the two previous auctions for the same bond).> Last week, the CBR reported its final estimates for international flows in September. Nonresidents increased their positions in OFZs by R80 bln m-o-m, bringing their market share to 21.6%, up from 21.4% at the end of August. Thus, the net foreign inflow over June-September totaled R465 bln, which more than offset the R320 bln outflow over February-April. That said, as of October 1 the share of nonresidents was still down around 1.7 pp YTD.