OFZ Weekly Flows - October 12, 2020

The improvement in the external backdrop in global markets and stabilization of the news flow regarding geopolitical risks triggered inflow from nonresidents into OFZs last week. However, by the end of the week some profit taking was observed, which, because of the lag in settlement, has probably not yet shown up in the NSD figures. Meanwhile, if the Finance Ministry starts more aggressively placing nominal issues at the auctions, this could lead to pressure on OFZ quotes. > Net inflow from nonresidents into OFZs last week totaled R24.3 bln and represented the highest increase since June. The main interest among foreigners remains in the belly of the curve: the 5y OFZ 26229 (inflow: R11.6 bln) and the 6y OFZ 26226 (inflow: R12 bln). However, there was also significant inflow in the issue with the longest duration: the 18y OFZ 26230 (inflow: R6.5 bln). The biggest outflow, meanwhile, came in the 4y OFZ 26227 (R7.8 bln) and the 10y OFZ 26228 (R2.9 bln).> Last week saw record amount placed for one auction day (R346 bln). The Finance Ministry has stated previously that it did not want for floaters to increase beyond 25% of the total volume of outstanding OFZs. (continued on next page) > Given the fairly high demand for nominals at previous auctions, this week the ministry might register new nominal issues and, in the coming weeks, increase issuance of nominals (to R20-30 bln for long-dated paper and up to R50 bln in the middle of the curve) (see last week's OFZ Auction Results note).> The share of nonresidents in the OFZ market has been decreasing steadily by about 0.5 pp per week since the beginning of September, reached 25.3% as of October 9. We estimate that by the end of this week the share of nonresidents might drop to 24.8%. > According to CBR data, the main buyers of OFZs in the secondary market were the largest banks (R34.2 bln). Other banks bought R13.3 bln, while non-financial organizations picked up R10.6 bln. Nonresidents and subsidiaries of foreign companies made net sales of R58.1 bln. In September, nonresidents and foreign companies bought on average 7.6% (R63.5 bln notional value) of what was offered at auctions, which is down 8.1 pp from the average level for August.