The government will be converting some bonds maturing this year into longer tenure bonds, including one that matures in 40 years.

The Reserve Bank of India (RBI) will conduct the auction on May 18, it said on its website.

The central bank notified that on behalf of the government, it will be switching three bonds worth Rs 30,000 crore maturing in June this year in favour of three bonds maturing in 2024, 2030 and 2060.

The government will use 2024 bonds to switch Rs 13,000 crore, 2030 for Rs 13,000 crore and Rs 4,000 for the 40 year paper.

While such switching is fairly common, converting bonds maturing in a few months for bonds as long as 40 years have never happened. Technically, this is opposite to Operation Twist that the central bank undertakes in which it buys long term bonds, selling an equivalent amount of short-term bonds. RBI’s actions enable the long term yields to come down so that the government can borrow cheaply. However, the switch, in this case, will push up yields, as the market will deem it as almost an addition to the existing borrowing plan.

That is because the bond investors are not getting the money immediately, which can be used to buy fresh bonds in auctions, according to experts. In terms of interest outgo, the government’s cost goes up as the market will adjust for tenure premium. Still, the yields are relatively low now and that may have encouraged the government to lock-in the rates for as long as 40 years, explained a bond dealer.

The 40 year paper is not a new instrument and is regularly used in the borrowing programme. The first such paper was issued in 2015, against which the government raised Rs 1 trillion. The volume outstanding in a paper maturing in 2059 is 83,461.952 crore. The one which is being used for the current switch has an outstanding volume of Rs 15,000 crore. It was first issued as a part of the first borrowing programme for the current financial year.

Such conversions, typically done at the first half of the financial year, happen to enable the government to repay the loans at a later date to ease the strain on the exchequer in the immediate term. The switching also increases volumes in the already issued long term securities and enables more secondary market liquidity.