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The forthcoming government securities auction, featuring the inaugural offering of 50-year bonds, is set to capture the financial world’s attention this Friday. There is considerable anticipation for these bonds, particularly among insurance companies.

The Reserve Bank of India (RBI), acting as the government’s banker, plans to secure Rs 6.55 lakh crore in the second half of the fiscal year through government securities. The introduction of the GS 2073 paper, a 50-year bond, is a significant development in this context.

The decision to introduce this ultra-long-term security follows market demand for extended-duration securities. The RBI administers the government’s borrowing program through weekly auctions.

According to the borrowing calendar, the RBI aims to raise Rs 30,000 crore through the 50-year bonds. The first auction, scheduled for November 3, will aim to raise Rs 10,000 crore, with subsequent auctions of similar amounts expected between December 11 and December 15, and January 22 and January 26.

Market observers believe that insurance companies and pension funds will eagerly participate in this bond auction due to their asset liability management strategies. As a result, oversubscription is likely.

A Bloomberg report, quoting Sampath Reddy, Chief Investment Officer at Bajaj Allianz, suggests that insurers are keen to acquire these 50-year bonds to manage their asset-liability mismatches more effectively. It is speculated that the yield on the 2073 bonds will be approximately 7.54%, in line with the cutoff for a 40-year bond sold just last week.

In other news, RBI Governor Shaktikanta Das conveyed his optimism about India’s robust growth momentum at the annual BFSI Insight Summit organized by Business Standard. He expects the official GDP growth data for the second quarter to surpass expectations when released at the end of November.

Additionally, Das mentioned the inclusion of Indian government bonds in JP Morgan’s global indices. This move could attract significant inflows of up to $25 billion, although it might also lead to outflows from passive funds that track the bond index weightage.

However, Das assured that the RBI has a proven track record of efficiently managing both large-scale inflows and outflows, drawing a comparison with the post-Ukraine war period when India did not experience substantial outflows, unlike the taper tantrum of 2013.

In closing, Das highlighted the RBI’s keen observation of the high level of attrition in some private sector banks, underscoring the central bank’s vigilance over the financial sector.

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