All eyes will be on the auction of government securities on Friday, with the 50-year-old bond on offer for the first time. The paper is expected to see strong interest from insurance companies.

The RBI as a banker of the government will borrow Rs 6.55 lakh crore in the second half of the fiscal through government securities. The GS 2073 paper — the 50-year bond — will now make an entry.

The government said that the decision to introduce the 50-year paper follows market demand for ultra-long duration securities. The RBI manages the government borrowing programme through weekly auctions.

According to the borrowing calendar, the RBI will raise Rs 30,000 crore through the 50-year paper.

The first auction will be for Rs 10,000 crore on November 3, while the second and third auctions of similar amounts are likely between December 11 and December 15 and January 22 and January 26.

Market circles said insurance companies and pension funds will bid for the bond given their asset liability management profile, and it is likely to be oversubscribed.

A Bloomberg report, quoting Sampath Reddy, chief investment officer at Bajaj Allianz said, that insurers would like to purchase these 50-year bonds to cover their asset-liability mismatch.

Reddy added that the long-tenor bond will help the companies manage interest rate risks better for their portfolios. It is felt that the yield on the 2073 note is likely to be around 7.54 per cent, the cut-off for a 40-year bond which was sold last week.

Das view

Meanwhile, RBI governor Shaktikanta Das said that India’s growth momentum remains strong and that the official data for GDP growth in the second quarter will surprise on the upside. He was speaking at the annual BFSI Insight Summit organised by Business Standard here on Tuesday.

"… looking at the momentum of economic activity, looking at a few early data points that have come in, a few early indicators, I can say that the second quarter GDP number as and when it is released at the end of November, in all probability will surprise everyone on the upside," Das said. The RBI has forecast real GDP growth for the second quarter of the current fiscal to come at 6.4 per cent.

Das said the inclusion of Indian government bonds in the JP Morgan global indices was a double-edged sword: there are estimates that it could lead to inflows of $25 billion. On the other hand, passive funds that track bonds' weightage in an index could sell the securities leading to outflows.

However, Das pointed out that the RBI has built a strong track record of efficiently handling both large-scale inflows and outflows.

He said after the Ukraine war, India did not see huge outflows as seen during the taper tantrum of 2013.

``We can handle large-scale inflows (and) large-scale outflows. So, therefore, I don't think we will see that kind of volatility. I think the RBI can deal with it effectively."

Das said the RBI is closely watching the high level of attrition in some private sector banks.