OFZ Weekly Flows - November 29, 2021. Nonresidents Exit the OFZ Market in Substantial Numbers

Last week saw R72 bln in nonresident outflows, the largest withdrawal since April this year. This was precipitated by geopolitical headlines as well as rising global risk aversion in response to the emergence of the Omicron strain. It is also likely that many investors were also taking profits ahead of the US public holiday. We believe the selloff has been overdone, so given that the geopolitical backdrop has stabilized, we anticipate some modest buying on the part of nonresidents. We do not expect them to pile back into the market, as they are likely to adopt a wait-and-see approach until the geopolitical tension has eased and Russian inflation has begun to trend lower. Russian consumer prices rose 0.2% in the week to November 22. They also rose 0.2% the previous week. In y-o-y terms, it looks like inflation will be around 8% in November and December, though we expect it to ease to about 7.8% by the year-end.> Nonresident outflow of R72 bln last week. Outflows reached R28.2 bln from the short end and R28.6 bln from the belly, while the long end saw outflows of R11.7 bln. The largest net outflows were registered in the 2y OFZ 26223 (R16.5 bln), 5y OFZ 26207 (R8 bln) and 13y OFZ 26225 (R7.3 bln). The sole inflows were in the 5y OFZ 26226 (R4.6 bln) and the 5y OFZ 26219 (R2 bln).> Finance Ministry canceled last week's auction amid the heightened market volatility. Despite signs of stabilization in the global backdrop, we do not think the ministry will deem it conducive to return to the market with fixed-coupon OFZs this week, though it could consider inflation linkers instead as a more defensive option.> We calculate that the nonresident share of the OFZ market eased 0.5 pp to 19.7% last week, based on the NSD figures. We do not expect a significant change this week.> CBR reported that nonresidents withdrew R55 bln from the OFZ market in October, with their share declining from 21.6% to 21.2%. According to the NSD, nonresident outflows totaled R107 bln between November 1 and November 26.