OFZ Weekly Flows - October 11, 2021. New OFZ Yield Levels Prompt Renewed Nonresident Inflows at the End of Last Week

Over the past two weeks, OFZ yields have climbed 8-10 bps at the long end, 10-15 bps in the belly and 15-20 bps at the short end. Some investors judged this weakening to be overdone, and nonresidents resumed buying toward the end of last week, brushing off weekly inflation data that showed an elevated figure of close to 0.3% for a second week in a row. The buying was supported by the Finance Ministry's conservative primary issuance strategy: last week for a second straight week it offered no fixed-coupon issues. All of this combined to ensure only a small outflow of R3.5 bln last week.We expect flows to be balanced again this week, with global market volatility and a short working week in the US acting as restraining factors. The main focus will be on the weekly inflation print. We still do not expect inflows to recover significantly until inflation has begun to tangibly slow.> Last week saw a small outflow of R3.5 bln. The short end saw R7.7 bln of outflows, while intermediate issues saw R0.9 bln of inflows and R4.6 bln of inflows were registered at the long end. The leading issues in terms of inflows were the 8y OFZ 26237 (R9.0 bln), the 14y OFZ 26233 (R8.3 bln) and the 5y OFZ 26226 (R6.4 bln). The largest outflows were registered in the 6y OFZ 26232 (R14.4 bln), 4y OFZ 26229 (R7.3 bln) and 9y OFZ 26235 (R6.8 bln).> Finance Ministry placed only linkers last Wednesday, issuing a modest R10.1 bln in the 11y OFZ 52004 (March 2032). Bids reached R28.9 bln. The real yield at the cut-off price was 3.09%, implying a 9 bp premium over the neighboring 8y linker, the OFZ 52003 (July 2030). Since the placement was a debut issue, the premium looks modest to us (see our auctions note).> Based on NSD data, we estimate that the nonresident share in the OFZ market stayed at 20.9%. We expect the ministry to stick with its conservative strategy over the near term, and we anticipate balanced nonresident flows, so we do not expect any pronounced changes in the share at the end of this week.