OFZ Weekly Flows - September 28, 2020

The risk-off mood that took hold in global markets early last week, together with a weakening ruble and worries of an escalation in geopolitical tensions, sparked a net outflow of nonresident money from the OFZ market last week. For the time being, we see little reason to expect a recovery in foreign demand for OFZs and think their share in the market will continue to drop in October.> Last week saw a R34 bln net outflow of nonresident investments in the OFZ market, the most since March. The data from the National Settlement Depository (NSD) showed outflows spanning across the curve, though they were concentrated in the belly. The biggest outflows were in the 6y OFZ 26207 (R9.6 bln) and 14y OFZ 26225 (R5.4 bln), while inflows were registered in the 6y OFZ 26226 (R4.9 bln) and 5y OFZ 26234 (R2.3 bln).> The Finance Ministry placed R120 bln in total at last week's auction. It placed R100 bln in the new 8y floating-rate OFZ 29015 (October 2028), and then placed the full R20 bln on offer in the 5y nominal OFZ 26234 (July 2025), needing to provide a premium of 2 bps to do so (see our latest OFZ Auction Results). If the market backdrop does not improve significantly before this week's auction announcement Tuesday evening, we believe the Finance Ministry could end up offering only floating-rate issues on Wednesday (for example, the 10y OFZ 29013 and the new, yet-to-be-offered 6y OFZ 29016). > The share of nonresidents has slowly dropped in September, falling another 0.5 pp to 26.6% as of September 26. Earlier in the month, their share was dropping without a considerable net outflow; the decline owed primarily to the fact that the Finance Ministry was placing mainly floating-rate issues, for which foreigners make up a minimal percentage of ownership. However, last week the outflow of nonresident investments accelerated and the ministry placed a considerably lower volume than in the weeks prior, which we estimate may have resulted in the share of nonresidents shrinking to 25.7%. > According to CBR data (which includes all Russian sub-depositories), nonresidents' OFZ holdings grew by R14 bln in August, while their market share dropped 0.4 pp to 29.4%. The previously published NSD data had shown a slightly smaller inflow of R13 bln. We believe the CBR's data will register a further 2.4 pp drop to 27.0% in September given the accelerated outflow of foreign money and the placement of mainly floating-rate notes.