OFZ Weekly Flows - November 8, 2021. Nonresident Outflow Continues, but We Expect the Trend to Reverse This Week

The nonresident outflow from the OFZ market reached R64 bln last week. We largely attribute this number to the selloff at the end of the previous week and the lag between trading and settlement, as activity was limited last week due to the two days off in Russia for a public holiday.We are likely to see OFZ yields decline at the beginning of this week as investors react to softening domestic inflation and an improvement in the external backdrop. In response to caution from the Fed and BoE, the US Treasury curve dipped by 5-10 bps while Russia was on holiday. However, we believe further signs of slowing inflation in Russia are needed for a significant influx of nonresident money into the OFZ market. We anticipate a modest nonresident inflow this week.> According to the National Settlement Depository, nonresident outflows from the OFZ market totaled R64 bln last week. The middle of the curve saw the largest outflow (R44.9 bln), while R14.8 bln left the long end and R3.9 bln left the short end. In terms of individual issues, the largest declines were seen in the 9y OFZ 26235 (R17 bln), the 6y OFZ 26232 (R14.1 bln) and the 10y OFZ 26239 (R11.9 bln). The 5y OFZ 26207 (R4.2 bln) and OFZ 26223 (R3 bln) were the sole issues to see significant inflows.> The Finance Ministry canceled last week's auctions due to elevated volatility in the financial markets and the short working week. We believe that the market backdrop should be positive for the resumption of auctions this week.> Based on NSD data, we calculate that the nonresident share of the OFZ market eased by 0.4 pp last week to 20.1%. This week, we anticipate nonresident inflows, and if the ministry manages to place a figure close to its weekly target at the auctions, we expect the share to climb by 0.2 pp to 20.3%.