Investing in bonds with the government as the borrower is as close as to what we bankers can describe as a safe and easy investment option especially for medium-term plans (like if you want to save up for a family vacation). It can give you much higher earnings compared to savings accounts.
Now, don’t be intimidated by the words “treasury” or “bonds.” Instead, focus on the word “retail,” which means it is an investment opportunity targeted for ordinary investors. You don't need to be investment savvy nor to be very wealthy to take advantage.
Here's everything you need to know about retail treasury bonds plus a step-by-step guide how to become an investor:
What are Retail Treasury Bonds (rTBs)? It is one of the ways that our government borrows funds from the investing public. The lenders or investors (what YOU will be if you avail of these bonds) will earn interest periodically as compensation for lending money to the government for a given amount of period. In this rTB offering, you will be paid interest income every quarter.
Where will the government use the funds it borrows via the rTBs? The borrowed funds will be used for the “Build Build Build program” of the government. The program seeks to accelerate public infrastructure spending for the development of the Philippine economy.
How long before government returns the money I lent them? In this instance, you will get back the money you lent to the government (called “principal”) after three years from issue date. The exact date when you will be paid back your principal is called “maturity date.”
Since the issue date of rTB 21 will be on June 13, 2018, the maturity date will then be June 13, 2021. On this date, you will get your last interest payment as well as get your principal amount back.
Step 1: Visit any authorized selling agent banks The list of these selling agents will be finalized on May 30. Check the Bureau of Treasury (click here to go to the website) to see if your bank is a selling agent. Most major commercial banks are authorized to sell these bonds. Once you’ve chosen the selling agent, consult the bank's investment counselor and ask for a product briefing and risk profiling for rTB 21.
Step 2: Accomplish required forms Individual investors will be required to open a peso account or designate an existing peso account with the selling agent where interest and principal payments will be credited. Investors must submit to the selling agent the requirements for purchasing the RTBs (i.e., Application to Purchase, Client Information Sheet, IDs, etc.) plus payment for their investment.
Step 3: Pay the principal cost The "principal" is the amount of money you will invest in the bonds (or the funds that the government is borrowing from you). The minimum principal investment for rTBs is Php5,000. No other charges shall be asked of you if you buy the bonds during the offer period. As proof of said investment, you will receive a confirmation of sale from your selling agent.
When is offer period of rTB 21? The offer period will start on May 30 up to June 8, but call your banker as early as possible to make reservations. The government usually puts a cap on the amount of money it will borrow so the earlier you invest, the better chances that you will get to avail of said instrument.
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During this offer period, the bonds are sold in the "primary" market, which is composed of the original lenders of the bonds. Investors of the primary market will be able to buy the bonds “at par,” which means the amount you pay on day one of your investment is the same amount of principal that you will get on the maturity date. In other words, 100% of your original investment (or the purchase price you bought the bonds) will be returned to you in full on the maturity date.
After the offer period, these bonds are traded in the so-called "secondary" market where prices move. When a price moves, an investor may have to pay more or less than the amount that will be returned on the maturity date (read more below).
What if I was not able to invest during the offer period? You can still avail of the rTBs after the offer period has passed. This is through the secondary market. Since prices of the bonds in the secondary market move, the investors will be subject to price risks. Investors will not necessarily be able to buy the bond at par (like the primary investors can).
After the offer period up to the maturity date, the prices of bonds can go up or down at any given time (just like stocks). So, if you buy from the secondary market, you will be subject to these price changes.
So since investing via secondary market is subject to price risks, it is highly advisable to invest in rTBs during the offer period and become primary investors. That way, you are assured that you will be getting your bonds at par.
#1 By its interest earnings or as some people would refer to as “coupon” The owner of these bonds will get paid a fixed amount every quarter. The government will continue to pay these interests until the bonds mature and the interest will be credited to the savings account of the current owners of the bonds. So a holder of the bond is sure to get income from these bonds quarterly until the maturity date, or until he decides to sell the bonds, in which case, the new holder will get the interest earnings after that.
This interest will be computed as a percentage of the principal of the bonds and is expressed as “interest rate.” The Bureau of Treasury determines this rate in an auction procedure on May 30, 2018. And this rate will remain fixed until the maturity date.
#2 Through trading in the secondary market When you buy rTBs or any bond for that matter, you need not hold them until the maturity date. You can sell these bonds in the secondary market. A holder of the rTB can sell the bonds if prices go up and earn from the premium. In this case, you can get the principal amount back earlier plus profit.
However, once you sell your bonds, you will stop earning interests as well. From the date of sale, the secondary buyer will start receiving the quarterly interests attach to the bond.
So when you decide to sell your bonds when prices go up, make sure that the profit or the premium you will get from the sale is bigger than the potential interest earnings you will get had you kept the bonds until the maturity date.
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How sure is it that I get back my principal? The “principal” or the amount that the government promises to pay on the maturity date, is the basis of the interest amount that the bond will earn. It is not necessarily the same as your purchase price especially if you bought in the secondary market. As far as the government is concerned, it doesn’t matter if you purchased the bond at par, discount or premium. The said borrower is only obligated to pay you back what is stated in the bond as principal.
Government bonds such as the rTBs are the safest in the market. This is because the borrower is the Republic of the Philippines itself. The risk here is when the country goes bankrupt, which is not likely to happen at this moment (and let us pray it stays that way).
Hazel Antolin-Rosero is paid to make investment banking deals happen. But she finds the utmost joy in being hands-on working mom to her daughter, Nixi, alongside her loving husband, Ron. In her spare time, she enjoys singing for the Lord, engaging in fun conversations over a good meal and watching her favorite TV series.