OFZ Weekly Flows - November 16, 2020

The risk asset rally that took place after the US presidential election was particularly evident in the OFZ market, which was reflected in the National Settlement Depository data at the beginning of last week. Weekly nonresident net inflows reached R67.3 bln, their highest level since May. Despite the curve's significant slope, inflows were again focused in the belly. In all likelihood, investors were shunning the long end due to fears that the Finance Ministry will start ratcheting up nominal placements in this segment. Given these concerns and the subsequent decline in global risk appetite following the impetus provided by the US election and the vaccine announcement, we do not expect any significant growth in nonresident holdings this week.> NSD data indicates R67.3 bln of nonresident inflows last week - the largest inflow since May. Nonresidents were focused on the 10y OFZ 26228 (April 2030), which saw net inflow of R31.3 bln, while the 6y OFZ 26226 (October 2026) also saw punchy inflow of R8.1 bln. The only significant net outflow was seen in the 6y OFZ 26219 (September 2026).> Having already hit its 4Q20 borrowing target, Finance Ministry continues actively issuing floaters. Currently, actual borrowing has exceeded the target by R243 bln. Yet the Finance Ministry has not updated its guidance for the full year. It could be the case that the additional issuance is being carried out to finance next year's budget deficit. (continued on next page) > Though this has not been done before (the focus has always been on the current-year budget only), the Finance Ministry has been given more flexibility this year to act as demanded by the situation. We think that high volumes will continue to be placed. Meanwhile, the OFZ market has taken a wait-and-see approach as it awaits guidance on how much in the way of long-dated OFZs will be placed before year-end.> Share of nonresidents in the OFZ market was basically unchanged w-o-w, as foreign holdings grow (R67.3 bln inflow) proportionally with overall market amid R313 bln Finance Ministry placement on Wednesday. Assuming the Finance Ministry places a similar amount this week (around R300 bln), we see the nonresident share falling 0.5 pp to 21.7%.> According to CBR data, nonresidents bought R61.6 bln worth of OFZs at auctions in October. Because nonresident purchases of floaters remain negligible, the figures mostly reflect nominal issues. In October, the Finance Ministry placed R88 bln worth of nominals, 70% of which was acquired by nonresidents. However, their overall share in issuance in October was just 4.1% (3.5 pp below the figure for September). Large banks, meanwhile, were responsible for 89.9% of OFZs bought at auctions in October, up from 82.9% in September (notional value of R690.7 and R1.35 trln, respectively). The share of smaller banks and non-financial organizations dropped to a respective 1.5% and 4.5%. > CBR data shows that nonresidents and foreign subsidiaries were the main secondary-market buyers in October. Nonresidents and foreign subsidiaries made R18.9 bln worth of purchases in the secondary market, while non-financial organizations bought R5.8 bln. Both large banks and smaller banks were net sellers to the tune of a respective R15.3 bln and R9.5 bln (the volume of selling in the secondary market was significantly below what these entities purchased at the auctions).