OFZ Weekly Flows - September 20, 2021. Mild Nonresident Inflows Across the Curve

For the first time in some time, all three segments of the OFZ curve saw moderate net inflows of nonresident money last week, including the short end, which saw inflow pick up to R8.4 bln in the wake of the CBR's recent rhetoric. The belly and the long end registered net inflows of R19 bln and R12.7 bln. Total net inflow (including CPI-linked and floating-rate issues) was therefore around R37 bln. The week saw a further uptick in inflows into "new" issues (though less pronounced than that for the "old" issues). It seems some investors are still waiting for signs of a sustained slowdown in inflation, the return of volume limits at auctions and a further narrowing of spreads between new and old issues. We still expect to see auctions with set volume limits return soon given the recent progress made toward the annual borrowing plan, and we still expect the spreads on the new issues to old issues to narrow as they approach their volume limits, as the spreads are largely a reflection of the inability of US investors to participate at OFZ auctions. The first new issue to reach its volume limit and thus approach the levels of the old curve will likely be the 10y OFZ 26239 (July 2031), which has already seen R325 bln placed out of the R500 bln limit.> NSD registers R37 bln net inflow of nonresident investment last week. The biggest inflows were in the 5y OFZ 26207 (R18.0 bln), 7y OFZ 26236 (R6.9 bln) and 2y OFZ 26223 (R6.8 bln). The biggest outflows were from the 5y OFZ 26226 (R7.2 bln), 8y OFZ 26237 (R3.5 bln) and 9y CPI-linked OFZ 52003 (R2.7 bln).> Finance Ministry placed R63.4 bln in total at last Wednesday's auction. This was a lot more than the average amount it needed to place (R30-35 bln per week) to meet its annual OFZ issuance target. The ministry has now placed R742 bln since the start of 3Q21, more than its target of R700 bln for the quarter. In our view, the Finance Ministry is likely to go back to auctions with set volume limits soon, especially given that non-oil and gas tax revenues have exceeded expectations so far this year (see our latest OFZ Auction Results for more).> On our estimates, the share of nonresidents in the OFZ market climbed 10 bps to 21.0% last week (based on the NSD dataset). We still expect the inflows of nonresident money to persist and the volume of the Finance Ministry's borrowing to ease in the near term, which would allow for the share of nonresidents to start growing at a faster pace, though we note that the Fed meeting this week could be a constraining factor here. We expect the share of nonresidents to climb to 21.1% by the end of this week.> CBR's August Financial Market Risks Review shows SIFIs still the biggest buyers at OFZ auctions, but their share fell to 42.8% from 46.6% in July. Over the last four months, the share of nonresidents at OFZ auctions (at the end of each month) has been stable above 20%. In absolute terms, nonresident purchases at auctions tripled to R101 bln in August (up from R33.5 bln in July), which was one of the main factors behind the high volume of OFZ issuance in the month.> CBR report also shows net OFZ purchases by nonresidents and subsidiaries of foreign organizations nearly flat versus July level. They totaled R52.8 bln, slightly down from R55.0 bln in July. Subsidiaries of foreign organizations purchased R55.2 bln, while nonresidents sold R2.4 bln. The other segments of market participants were also net sellers. The biggest net sellers were non-bank financial institutions (with a net R25.3 bln in OFZs sold). SIFIs sold R17.7 bln net and other banks R9.8 bln. The share of retail investors in net OFZ purchases was 23.7% (R11.5 bln in volume terms). Individual investors transacted through both banks and non-bank financial institutions.