OFZ Weekly Flows - November 15, 2021. Nonresident Inflows Increased Until Uptick in Geopolitical Tensions

As we expected, last week started with a reversal in nonresident flows. After two weeks of significant outflow, nonresidents' OFZ holdings grew early last week in the wake of dovish rhetoric from the Fed and BoE. However, the escalation in geopolitical tensions in the FSU region late last week sparked a sharp uptick in yields, and most likely heavy nonresident outflow (given the lag in settlement, we will have to wait until next week's NSD data for confirmation). The focus in the OFZ market this week will be on the weekly inflation data due Wednesday night. If inflation remains close to 0.1% w-o-w, this will cause a further shift in investor expectations for the key rate in the coming months. Markets are currently pricing in a 50-75 bp rate hike in December. As usual, we recommend sticking to cautious positioning in the lead-up to the inflation data, receiving long-term rates and paying short-term rates.> Nonresident OFZ holdings grow R33 bln last week. The inflow of nonresident money was concentrated in medium-dated paper (net inflow of R21.9 bln), while the long end also saw net inflow (R16.1 bln) and the short end registered an outflow (R6.4 bln). The biggest inflows were in the 2y OFZ 26223 (R13.8 bln), 10y OFZ 26239 (R11.7 bln) and 14y OFZ 26233 (R9.5 bln). The biggest outflows were from the 4y OFZ 26229 (R11.3 bln) and 5y OFZ 26207 (R6.3 bln).> Improved backdrop allows Finance Ministry to place R40 bln in nominal paper at last week's auction. We cover the very solid results in more detail in last week's OFZ Auction Results. We think the Finance Ministry could reduce the amount on offer at this week's auction, which would support the market, though much will depend on the geopolitical backdrop. > Using the NSD's methodology, we estimate that the share of nonresidents rose 0.1 pp to 20.2% last week. We expect to see a decline in this weeks' data, which will reflect the outflows late last week. Moreover, we think investors will be in wait-and-see mode early this week. We expect the share of nonresidents to drop below 20.1% in this week's dataset. > CBR publishes October Financial Market Risks Review. According to the report, SIFIs took in 57.4% of the volume placed at October's OFZ auctions. The report also indicated that nonresident investors only received 13.3% of the volume placed, down 14.4 pp from 27.8% in September.