The results of yesterday’s Central Bank of Kenya treasury bills’ auction are in and the verdict is clear. Kenyans love their treasury bills. Specifically the long term ones. The CBK received 157 bids for the 91-day treasury bills amounting to Kshs. 1.6 billion which represents about 39.99% subscription. That’s low right? Well, keep reading. The longer-term 182-day treasury bills had an almost-similar number of 156 bids. The difference is that the 182-day bills were oversubscribed by a staggering 235.09%. Kenyans wanted Kshs. 7.052 billion of the stuff while only Kshs. 3 billion of 182-day bills was on offer. The difference between the interest rates of the two bills on offer was a meagre 0.7% (16.078% for the 91-day bills and 16.737% for the 182-day bills) but the difference was clear. 235% versus 40% is pretty clear.

In the results of the auction held on 4^th April 2012, there were 152 bids amounting to Kshs. 1.77 billion (40% subscription), 123 bids amounting to Kshs. 4.19 billion (140% subscription) and 63 bids amounting to Kshs. 6.2 billion (207% subscription) for the 91-day, 182-day and 384-day T-bills respectively. In the results for the previous auction (28^th March 2012), there was a 30% subscription for 91-day treasury bills (Kshs. 1.19 billion for Kshs. 4 billion desired) and 149% subscription (Kshs. 4.47 billion for Kshs. 3 billion).

The rate on the bills, the interest rates we’re talking about above, are determined by the bids. It really is an auction so you bid for a certain value of bills at a certain interest rates of your choice. The above rates indeed are determined by the bidders themselves. Outlandish bids are rejected by the CBK ofcourse so the interest rates quoted above are on the accepted ones. Normally, one would bid within reasonable expectations so that the bid is accepted and you make money and rejection on bids is usually quite rare. Also, it is normal (and expected) that longer-dated bills attract higher interest rates because they’re technically riskier, with payment coming after a longer date.

The thing is, it is not as if the longer-dated bills have such a high interest rate that investors would necessarily want them because they’d make significantly more money. Like we noted above, 0.7% between a 3-month long bill and a six-month long bill. If you invest Kshs. 100,000 in both bills, the money difference at the end of the six months of the 182-day bill is Kshs. 3,849, that is, 3.849% extra for the extra risk. So what can we infer from this? That Kenyans anticipate inflation to drop in around 6-months time such that they’ll make a bigger real return on their investments hence the longer-dated bills are more attractive? Maybe. Or is it that Kenyans want to maximise their gains, no matter how much extra they’re making? I mean, three thousand shillings can buy a decent lunch for two in a high-end restaurant.