How to Invest in Bonds in the Philippines

Last Updated – Jun 2, 2023 @ 1:19 pm

Ask anyone you know where they put their hard-earned savings and I bet 90 percent of the answers will be: 

Banks.

As early as 5 years old, we’ve been taught to save money in our plasticky little piggy banks, then move on to big-boy (and big-girl) banks as soon as we can. Because, where else should we put our savings?

Right? 

Well, sure, banks are good for that purpose. They’re a safe place to store away our money whether for emergency funds, future expenses, or just a general stash where we can dump our excess income. 

But just like our beloved piggy banks, actual banks don’t serve us much if our goal is to grow our money.

With interest rates at less than 1%, a Php100,000 investment would only get you enough earnings to buy a meal at your favorite fast food (Php250 earnings at 0.25% for 1 year).

That small, huh? 

Yes, Mamser.

So what if I tell you that there’s another way to keep your money and at the same time earn while you sleep?

As that saying goes, “Make your money work for you.”

I’m talking about bonds. 

In this article, we’ll cover all the essentials of this under-utilized investment vehicle. 

Stuff like: How they work, how much they can earn you, how to start investing in them—and more. At the end of this piece, you’ll have another instrument in your financial toolbox so you can build your assets faster and gain financial freedom.

Ready? Let’s start with the most important question:

What are Bonds?

It’s like a reverse utang (loan), basically. How? Instead of the typical lender-borrower set up where the borrower approaches the lender to ask for some money, a bond will have the borrower (bond issuer) produce a contract (bond) that states the terms of payments back to the lender (bondholder). 

Imagine a bond as a contract that states something like this, “In 10 years, our company will pay the owner of this bond Php50,000 (face value of the bond). We’ll also pay a 5% interest rate on a yearly basis.

In this case, the borrower is the one setting the terms, not the lender. It’s also more flexible for the borrower as they can set up bonds with multiple bondholders instead of just dealing with one.

It’s a great way of raising an enormous amount of capital without being tied to a singular lender. And this is why bonds are heavily-leveraged by the government and big corporations.

Here’s the clincher: Bonds can be traded too! If you’re a bondholder, you can actually sell your bonds in the stock market.

If you prefer not to wait for the bond’s maturity for whatever reason (or strategy), this option makes it more flexible as a financial vehicle.

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Types of Bonds

Bonds are considered the most common type of fixed income securities, which is defined as debt instruments that pay a fixed amount of interest in the form of coupon payments and returns the principal to the investor (bondholder in the case of bonds) upon maturity.

1. Maturity-based bonds 

Bonds categorized based on the length of time it will mature.

• Treasury Bills (T-bills) – Bonds that mature in less than 1 year (short term). The most common tenors (length of maturity) for T-bills are 91 days, 181 days, and 364 days.
  • Pros:
    • Matures in less than a year (shorter investment time frame)
    • Sold at a discount from their face value but the investor will get the full amount upon maturity (works like a zero-coupon bond)
  • Cons:
    • Doesn’t pay income or coupon interest 
• Treasury Bonds (T-bonds) – Bonds that have tenors of more than 1 year. The most common maturity lengths for T-bonds are 2-year, 5-year, 7-year, 10-year, 20-year, and 30-year bonds.
  • Pros:
    • Pays investor coupon interest (fixed income) at fixed intervals for the duration of the bond
  • Cons:
    • Can present a higher risk due to the longer length of time before it matures

2. Issuer-based bonds

These are bonds that are classified according to who issued it:

• Treasury Securities – Bonds issued by the Bureau of Treasury
  • Pros:
    • Low(er) risk since investment is backed by the full faith and credit of the government (vs other fixed income investments)
  • Cons:
    • The lower risk comes with a lower yield potential compared to other fixed income instruments
• Government Bonds – Bonds that are issued by various government agencies like HDMF, Government National Mortgage Association (GNMA), Federal National Mortgage Association, and others.
  • Pros:
    • Low(er) default risk (similar with Treasury Securities)
    • Favorable tax treatment
  • Cons:
    • Interest rate risk. Gov’t bonds may lose value if market interest rates rise beyond the bond’s face value
• Municipal Bonds – Bonds issued by the local government units (LGUs).
  • Pros:
    • Low(er) default risk
    • Low volatility
  • Cons:
    • Interest rate risk. Gov’t bonds may lose value if market interest rates rise beyond the bond’s face value
• Corporate Bonds – Bonds issued by public and private companies.
  • Pros:
    • Potentially higher returns vs gov’t-issued banks
    • Highly liquid
    • Multiple options
  • Cons:
    • Higher risk compared to gov’t-issued bonds

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Benefits of Investing in Bonds

• Provides better returns on your money compared to banks
• Serves as another investment tool for diversifying your investments
• Lets you preserve your capital and earn interest from it at the same time
• Generally viewed as safer than stocks as its less volatile in nature (especially short and medium-length bonds) 
• Bonds are tradeable (liquid)
• Bondholders receive some form of protection for their investment, when a company goes bankrupt, the bondholders typically receive a portion (if not the face value) of their investment
• There are different types of bonds that you can choose from

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How Can You Make Money From Investing in Bonds?

As an investor, the first step would be to buy bonds when the government or a private/public company announces a bond offering.

Details as to how you can purchase them may vary, the key is to position yourself for purchase once announcements have been made.

Government and companies announce bond offerings a few months before the actual release, giving investors enough time to make the necessary arrangements. 

You make money from bonds via the interest gained on the face value (price of bond) of your investment. 

Coupon payments are the “earnings” paid to the bondholder at certain periods of time. For example, a company issues a bond with a 5% interest rate.

Depending on the designated frequency, the bondholders will receive a portion of that 5% per annum rate, say, on a monthly or quarterly basis. 

And since bonds can be traded, you also have the option to sell and earn via markup from your original purchase price.

Some bondholders might also want to free up their capital sooner and choose to liquidate by selling the bond before it matures, allowing them to be more flexible in their investment strategy.

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Is It Safe to Invest in Bonds?

While there’s no absolute 100% safe investment that exists, bonds are considered to be one of the less risky ways of growing your money. 

Aside from being less risky, say, compared to stocks, it also requires less activity from an investor’s standpoint. 

The only real risk that comes with investing in bonds is if the company that issued the bond declares bankruptcy. While rare, it’s still a possibility and hence considered as risk.

However, there are mechanisms within the bond itself that will guarantee some form of payment back to the investor in such events. 

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How to Invest in Bonds in the Philippines

Investing in bonds in the Philippines is fairly easy. Most transact through an RTB-issuing bank to make their investment.

Requirements:

Most banks and financial institutions require:

• 2 valid IDs
• Tax Identification Number
• Documents that provide bank account information (e.g check book or pass book)
• Minimum initial investment

Once initiated, you’ll be provided with the appropriate forms to complete and will be given instructions if other additional documents or requirements will need to be submitted. 

Minimum Investment 

The minimum investment required varies depending on the type of bond being purchased.

• For Corporate Retail Bonds, for example, the typical minimum investment is Php50,000.
• Retail Treasury Bonds, on the other hand, can be purchased for as low as Php5,000 minimum capital.
• Treasury Bills (T-Bills) typically require a minimum of Php50,000 investment as well.

For corporate bonds, some banks advise the general public through their official website and/or mailing list. Information and requirements for investing in bonds are typically posted on their website.

For example, a recent email newsletter from a bank announced the availability of a certain company’s corporate bond with the following details:

Tenor: 7 years
Interest Rate: 5.2757 gross p.a
Denomination: Minimum of Php50,000 (increments of Php10,000 thereafter)
Interest Payment: Quarterly

Interested parties will be required to submit their initial contact info so an agent from the bank can follow-up and provide them with instructions on how to proceed.

For Government bonds like T-bonds, you can visit the Bureau of Treasury website for updates and listings for any upcoming public offerings. Here’s a sample announcement for one of their recent offerings (2019).

You can also reach out to banks and check if they have any government bond offerings.

Either way, you’ll be transacting with your RTB-issuing bank (see list below) to initiate the investment. 

Like with corporate bonds, they’ll provide you with details and instructions along with the paperwork to complete should you wish to proceed with the investment.

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List of Banks That Offer Bonds in the Philippines

Most banks in the Philippines offer various fixed income products like Retail Treasury Bonds, T-Bills, Fixed Rate Treasury Notes (FXTNs), Dollar Sovereign Bonds, and Dollar Corporate Bonds, among others.

Here’s a suggestion: Check with your existing bank if they offer any fixed income products. You’ll likely receive a Yes for an answer, so it will really just be a matter of preference when it comes to choosing which RTB-issuing bank you’ll want to use. 

Some of the more popular banks known to offer bonds and other fixed-income products include:

• Security Bank
• BDO
• BPI
• Unionbank
• PNB
• Metrobank
• RCBC
• Landbank
• Bank of Commerce
• China Bank
• Development Bank of the Philippines (DBP)
• PBCom

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How to Invest in Bonds Online in the Philippines

Did you know that you can buy and sell bonds online through a mobile app?

With Bonds.PH, it’s not only possible but also convenient. With the quarantine restrictions in place due to the COVID-19 pandemic, Bonds.PH lets you easily invest in government securities from home.

What is Bonds.PH?

Bonds.PH is a mobile application that enables small investors to buy and sell Philippine retail treasury bonds (RTBs) anytime and anywhere using their smartphones.

It’s the first fully digital platform for investing in government bonds.

The Bonds.PH mobile app was launched by the Bureau of the Treasury in partnership with UnionBank and Philippine Digital Asset Exchange (PDAX).

Bonds.PH Features:

• Minimum investment: Php 5,000
• No bank account required
• Accessible 24/7—buy or sell RTBs anytime
• Can be used by OFWs and Filipino investors abroad
• Individual investment accounts only (No support for joint accounts at the moment)
• Cash in through debit card (Visa/Mastercard/JCB), bank deposit, online bank transfer via InstaPay or PESONet, e-wallets (GCash and PayMaya), or bitcoin

Steps to Start Investing Through Bonds.PH

Anyone above 18 years old in the Philippines or abroad may use the Bonds.PH mobile app for investing in government bonds. 

Here’s a step-by-step guide for starting your bond investing journey through Bonds.PH.

Step 1: Create a Bonds.PH account

1. Download the Bonds.PH app from the Apple App Store or Google Play Store.
2. Once installed, launch the app and tap the Sign Up button.
3. Enter your full name, email address, and mobile number.
4. Create a six-digit PIN that you’ll use to access your Bonds.PH account.
5. Click on the verification link sent to your email address to complete your registration.

Step 2: Verify your account

1. Open the app and log in to your account.
2. Tap the account icon on the upper left corner of the home screen.
3. Select “Account Verification” > “Start Account Verification.”
4. Fill out the Client Sustainability Assessment form.
5. Accomplish the User Information Verification form.
6. Upload a photo of your valid ID and your selfie with the ID.
7. Review all the information you provided. If everything is correct and complete, hit “Submit.”

You’ll then undergo a client verification process. Within two business days, you’ll be informed via email about the approval of your account verification.

Step 3: Add funds to your account

1. Once your account is verified, log in and tap the Cash In button.
2. Select your preferred cash-in payment channel.
3. Enter the amount you want to add to your Bonds.PH account.
4. Pay the total amount due.

• For online payment channels: Check your email for a message from Bonds.PH and click on “Pay Now.” This will take you to the payment portal of your payment channel.
• For bank deposit: Pay the cash-in amount at your selected bank and submit a copy of your proof of payment or deposit slip. 

Step 4: Buy bonds

1. Log in to your account.
2. Tap the Buy icon or choose from the list of available bonds on the dashboard.
3. Select the RTB you want to purchase.
4. Enter the amount to invest. Tap on “Next.”
5. Review your transaction details and tick the checkboxes to confirm your order.
6. Tap on “Buy.” You’ll see a confirmation message on the app and receive an email message with the bond’s terms and conditions.

I hope this article has been useful in helping you understand what Bonds are and how to invest in them. If you want to learn other ways of investing and saving your money, start here.

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Investing in Bonds FAQs

Still got questions about investing in bonds? We’ll answer them below.

How do I buy and sell bonds in the Philippines?

Buying and selling bonds are easier than you think. If you’re using Bonds.ph, all you need to do is go to its main dashboard and click “buy” or “sell.” If you sell your bonds, you can cash out your money instantly or use it to buy another bond. 

You may also buy and sell bonds through any authorized selling agents of the Bureau of Treasury, as well as any brokers in the secondary market. Keep in mind that you will pay additional brokerage fees on top of the withholding tax if you go with the latter option. 

How do I determine the value of a bond?

Understanding bond valuation is important to determine whether a certain bond is a good investment or not.

The current value of a bond can be determined by totaling all interest payments and adding that amount to the principal that will be paid upon its maturity.

Let’s take a look at an example. If you bought a P100,000 bond that has an interest rate of 1.62% and a maturity of five years, it will pay you P1,620 each year until it matures.

The next step is to determine an appropriate discount rate. All the future payments of your bond must be discounted to equal its present value. To do this, you must look up the current rates for new-issue bonds that are the same as the bond you’re pricing. We’ll assume this value is 1.0097.

Then, you need to determine the present value of the remaining payments. This is determined by dividing each payment by (1 + r)^t where r refers to the discount rate determined in the last step and t refers to the numbered payment remaining. Example:

• Present value of the next payment: P1,620/1.0097 = P1,604
• Present value of payment two years out: P1,620/(1.0097)² = P1,589
• Present value of payment three years out:  P1,620/(1.0097)³ =P1,574
• Present value of final payment: P1,620/(1.0097)⁴ = P1,559
• Finally, calculate the value of the bond by adding the present values of future payments: P1,604 + P1,589 + P1,574 + P1,559 = P4,767

How do I decide which bonds to invest in?

Just like any investment, it is integral to take a look at your risk tolerance. It is also recommended to check the bond rating to assess the degree of risk that is inherent to the instrument.

Next, factor in the maturity date of the bond, as well as its interest rate (fixed or floating). You should also look at the history of the bond issuer and assess if they are able to handle interest payments well in the past.  

How does the interest rate affect bond prices?

The prices of bonds have an inverse relationship with interest rates. When the interest rate increases, the price of the bond decreases. On the flip side, when the interest rate decreases, the prices increase.

But why is this the case?

The bond price reflects the value investors can get through its interest payments. If the prevailing interest rate falls, older bonds that have higher interest rates become valuable. Therefore, investors who have these bonds can charge a high rate to sell them in the secondary market. 

If the interest rates increase, it means that older bonds become less valuable since their interest payments become lower compared to new bonds. Therefore, the price drops, and they are traded at a discount.

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