Good news!!!! The long wait is over!
Last September 2, 2016, the Bureau of Treasury (BTr) announced the offering of its retail treasury bonds. According to BTr, the 10-year debt paper, which is the eighteenth tranche of the Peso-denominated retail bond offering of the government, aims to reach a wider retail investor base. Treasurer Roberta Tan said, “The government wants the ordinary investor have easier access to safe government debt securities.”
With an initial investment of Five Thousand Pesos (P5,000.00), you could now avail of your own retail treasury bond investment! The offer period is from September 6 until September 16, 2016 only. The interest rate is at 3.5% per annum, paid quarterly.
But first, what are retail treasury bonds?
Retail treasury bonds (RTBs) are government securities which mature beyond one year. Usually, RTBs are offered for investors with long term perspectives and for those who need a safe investment.
RTBs are offered in order for the government to fund its expansion projects and even debt payments.
Compared to time deposits, RTBs offer a higher yield or interest rate. As of 2016, upon checking the website of the two famous local banks in the Philippines, Banco de Oro and Bank of the Philippines Islands, the rate of return for a 5 million peso time deposit placement for a year is just 1.125% and which is still subject to a 20% final withholding tax. That’s very low! It’s not even enough to beat the current inflation we have at 1.8% as of August this year.
When the government really needs money to pay for its debts or fund very large projects, RTBs are offered at very high interest rates. In 1998, during the Asian financial crisis, it went as high as 21%!
Generally, bonds with higher maturity period offer higher interest rates.
Since retail treasury bonds are offered by the government, we are sure that having an investment here is safe since the possibility of the government defaulting is virtually non-existent. The Republic of the Philippines could always print more money or borrow money in case it cannot pay off its investors.
Key features of RTBs:
Aside from the fact that it is a debt instrument that is backed and paid for by the government as the guarantor, here are its three primary features:
- Interest rate is known in advance
Upon public offering to the retail investors, its interest rate is known in advance. This way, you may easily decide if you’ll grab the offer or not. This makes RTB returns certain and predictable, which should be more appealing to conservative investors.
- Interest rate is FIXED
Unlike stocks that are very volatile and unlike mutual funds and unit investment trust funds that are also affected by market prices and demand and supply, retail treasury bonds give us more peace of mind as interest rates are known in advance and are fixed at the published rate. Therefore, you’ll know exactly how much you’ll be earning.
- Interest income are paid quarterly.
What’s good about RTBs is that it has predictable returns that you could enjoy every 3 months!!! Unfortunately, per Revenue Regulation No 14-2012, all financial instruments derived from government debt instruments and securities in the secondary market are subject to 20% final withholding tax. Nevertheless, the returns are still higher compared to a regular savings account or time deposit.
Note however, that interest rates here are not compounded. That’s why you have to look for ways to reinvest your earnings. For some investors though, they like RTBs since they could use the quarterly payments to pay for some of their obligations that also mature quarterly.
How does one compute for retail treasury bonds? Here’s an example:
INVESTMENT AMOUNT (PHP): 100,000
INVESTED IN RTB: 10YRS, 3.5% COUPON RATE
GROSS QUARTERLY INTEREST: 100K x .035 X ¼ = 875
LESS 20% FINAL WITHOLDING TAX: 875 X .80 = 700
COUPON PAYMENT PER QUARTER: 700
In a YEAR: 2800
Net Return in a Year: 2.8% (P2800 divided by 100,000 x 100%)
How do we get a hold of these offer?
The Bureau of Treasury has tapped BDO Capital & Investment Corporation, BPI Capital Corporation, the Development Bank of the Philippines, and Chinabank Capital as Issue Managers for this retail bond offering.
You may go to any of the branches of these banks and inquire at their low counter staff. Just be prepared since there are many documents to fill out and sign and requirements to pass.
Here are the basic steps to purchase RTBs as shown in BTr’s webiste:
- Investor 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 made.
- Investor submits to the Selling Agent the requirements for purchasing the RTBs (i.e. Application to Purchase, Client Information Sheet, etc.)
- Investor pays the Selling Agent for the RTB purchase.
- At the time of purchase of the RTBs, the Selling Agent shall issue an Acknowledgement Receipt/Official Receipt.
- Investor will receive a Confirmation Advice to be issued by the Selling Agent a few days after the Issue Date.
Going back to my question, why should you consider availing of RTBs? Aside from helping our government, it’s a sure way to mitigate your exposure to the market. It could also be your defensive asset in times of market uncertainty. Having RTBs in your asset allocation could balance out your portfolio.
Note: Pictures were taken from Bureau of Treasury website.
You may visit this link to know more about the limited offer.
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