OFZ Weekly Flows - October 4, 2021. Nonresident Outflows in All Three Segments

Last week saw a R26 bln net outflow of nonresident investments from the OFZ market, according to data from the National Settlement Depository. The outflows were spread across the curve, with R9.8 bln exiting from the short end, R13.9 bln from the middle and R2.3 bln from the long end. The drivers included both global factors (primarily the rise in DM bond yields) and local factors (the jump in weekly inflation to 0.3% seems to have triggered stop losses during a period of thin trading volume). On the other hand, one supportive factor for the market was the Finance Ministry's decision to cancel last week's auction. We expect to see a further outflow of foreign money next week, as Friday saw the most pronounced global risk-off sentiment last week and the day's transactions were not fully reflected in the NSD's data given the lag in settlement. Moreover, we assume that many foreign investors will be waiting for signs that inflation is slowing.> NSD registers R26 bln net outflow of nonresident investment last week. The biggest net outflows were from the 5y OFZ 26207 (R11.7 bln), 6y OFZ 26236 (R7.1 bln) and 1y OFZ 26220 (R5.8 bln). Inflows were recorded for the 6y OFZ 26232 (R9.3 bln) and 7y OFZ 26224 (R3.0 bln).> For second week in a row, Finance Ministry takes cautious approach with auctions. It decided to cancel the auctions altogether last week. This came as somewhat unexpected given the ministry's general policy this year and may mean that price has become more important than volume at this point. If the ministry continues to be cautious (it can afford to given that it is ahead of its borrowing plan and economic growth has been higher than expected), we think that long-term OFZs should outperform peer EM bonds in 4Q21 (see our note).> Based on NSD data, we estimate nonresident share of OFZ market fell 0.2 pp to 20.9% last week. We believe that this week could see another 0.2 pp decline to 20.7%, with the US September jobs report a risk factor. That could cause US Treasury yields to resume rising and put pressure on EM bonds. Meanwhile, Russian weekly inflation remains high.