OFZ Weekly Flows - November 9, 2020

While the ruble has rallied since the US election and OFZ yields dropped some 30 bps amid the reemergence of foreign buyers, the NSD data did not show an inflow of nonresident money last week. It instead showed a R16.9 bln outflow, which we assume owed to the settlement lag. The main focus of investors in the OFZ market right now is this week's auction, after which it may become clear whether the Finance Ministry intends to exceed its R2 trln borrowing target for 4Q20. Since the ministry is already 95.6% of the way there, it is likely to shift its focus to nominal issues this week.> NSD registers R16.9 bln outflow of nonresident money last week. The only issue that saw a notable net inflow of nonresident investment last week was the OFZ 26227 (July 2024), which received an influx of R8.8 bln. The biggest outflows were R9.2 bln from the OFZ 26226 (October 2026) and R5.8 bln from the OFZ 26234 (July 2025).> Finance Ministry placed R447 bln at last week's auction. This entire amount was placed in the 11y floating-rate OFZ 29018, the only issue on offer (see our latest OFZ Auction Results). The Finance Ministry is now 95.6% of the way to its R2 trln borrowing target for 4Q20, so we expect it to switch to nominal issues at this week's auction. One of the key risks for OFZs currently - a risk that has constrained previous declines in yields - is that the Finance Ministry could significantly overshoot its borrowing target. > If it begins to appear that it does not intend to do so (based on the current plan, it only needs to place around R10 bln per auction to meet the target), the ongoing rally could pick up steam, even at the long end considering how steep the curve is currently.> Heavy issuance of floaters causes nonresident share to drop 0.9 pp to 22.3%. We do not expect their share to drop much further, as we do not expect the Finance Ministry to continue auctioning off floaters. On the contrary, we expect it to recover 0.3 pp to 22.6% this week given the pickup in volumes in the secondary market late last week following the US elections and the fact that much of this was attributable to nonresidents moving back into the market (which was not reflected in the data for last week).