Entries Tagged 'Personal Finance' ↓

What are Treasury Bonds?

Treasury Bonds or T-Bonds are government securities similar to Treasury Bills except that they have periods of maturity longer than one year. At present there are five maturities of bonds offered by the Philippine government: 2-year, 5-year, 7-year, 10-year, and 20-year. In general, consumers cannot buy T-Bonds directly from the government. However, the government does offer Retail Treasury Bonds (RTBs) through selected Government Securities Dealers (see list of GSEDs as of February 17, 2011)

T-Bonds are sold at its face value on origination. The yield is represented by the coupons, expressed as a percentage of the face value on a per annum basis, payable on a fixed number of periods per year. Let’us take an example for clarity. Just recently the government offered to sell 10-year RTBs with a 6% coupon to be paid quarterly. If you bought RTBs at a face value of P100,000, your yield is initially 6% or P6,000, to be paid quarterly. Thus, your investment of P100,000 will earn you P1,500 every quarter for the next 10 years while you hold the bond.

Note that the price of the bond that you bought fluctuates through the years depending on market conditions. If the price goes down to P80,000, your yield goes up to 7.5%. This happens because you are getting the same guaranteed P6,000 on an asset that is now worth P80,000 (P6,000/P80,000). Conversely, if the bond price goes up to P120,000.00, your yield shrinks to 5.0% (P6,000/P120,000).

What are the risks in investing in Treasury Bonds?

The primary risk in any bond market is interest rate risk. By buying a bond, you are committed to receiving a fixed rate of return for a fixed period. Should the market interest rates rise, the bond’s price will fall accordingly. Thus, your bond will be trading at a discount to reflect the lower return that an investor will make on the bond. Note that you will still get the fixed income on a regular basis. However, your money could have earned a better through some other investments available at that time when the interest rates have risen.

What Are Treasury Bills?

Treasury Bills or T-Bills are short-term, government bonds that typically mature within a year’s time. They are called Treasury Bills because they originate from the the Bureau of the Treasury (Kawanihan ng Ingatang-Yaman) under the Department of Finance (Kagawaran ng Pananalapi) of the Philippine  government.

The Bureau of the Treasury regularly issues T-Bills for the sole purpose of financing the debt of the Philippine government. T-Bills are considered highly stable investments because they are based on the stability of the government of the Philippines. A government default or overthrow is unlikely, which is why these government securities are considered stable.

T-Bills are short-term in nature and typically have three maturity periods: 91 days, 184 days, and 384 days. 91-Day T-Bills mature in 91 days from the issue date. For example, Treasury Bills belonging to the series PIBL0311I197 were auctioned in 9/19/2011 had an issue date of 9/21/2011 and a maturity date of 12/21/2011. Similarly, 182-Day T-Bills and 364-Day T-Bills have a maturity date of 182 days and 364 days respectively.

How Do You Invest In Treasury Bills?

You cannot buy T-Bills directly from the government. These securities are sold by the government at auction to the highest bidder and only licensed Government Securities Dealers (GSEDs) can participate in this auction.  After the dealer buys the securities from the government, they can then sell it to their clients for a commission. If you are a client of a GSED, you can then buy the T-Bills from that GSED. There will be a minimum investment amount, and a 20% withholding tax will be applied to the earnings.

Just to give you an idea, here are some of the well known GSEDs and their minimum placements for Treasury Bills (as of October 1, 2011):

Government Securities Dealer Minimum Placement Call
Banco de Oro Unibank, Inc. P100,000.00 858-3085 to 87
Bank of Commerce P10,000.00  
China Banking Corporation P200,000.00 (632)885-5626 to 30
Land Bank of the Philippines P100,000.00 522-00-00 locals 7257 to 7270
Philippine National Bank P500,000.00 (632)526-3019 to 26

Why Invest In Treasury Bills?

Treasury Bills are fixed-income instruments with the backing of the government. Thus, they are considered as “zero-risk”. Moreover, T-Bills offer better returns than time-deposit bank accounts. Thus, if you have funds that you need to park for the short-term, Treasury Bills can be a good fit for you.

List of Government Securities Dealers (GSEDs) as of February 17, 2011

Below is a list of Government Securities Dealers (GSEDs) as of February 17, 2011. These are the only dealers allowed by the Philippine government to trade in government securities such as T-Bills and T-Bonds.


  1. Allied Banking Corporation
  2. Asia United Bank
  3. Asiatrust Development Bank
  4. Australia & New Zealand Banking Group Ltd.
  5. Banco de Oro Unibank, Inc.
  6. Bank of Commerce
  7. Bank of the Philippine Islands
  8. BDO Private Bank
  9. China Banking Corporation
  10. Chinatrust (Phils) Commercial Banking Corp.
  11. Citibank, N.A.
  12. Citibank Savings, Inc.
  13. Citystate Savings Bank
  14. Deutsche Bank
  15. Development Bank of the Philippines
  16. East West Banking Corporation
  17. Export and Industry Bank
  18. Hongkong and Shanghai Banking Corp., Ltd.
  19. ING Bank
  20. JP Morgan Chase Bank, National Association
  21. Land Bank of the Philippines
  22. Maybank Philippines, Inc.
  23. Metropolitan Bank and Trust Company
  24. Philippine Bank of Communications
  25. Philippine Business Bank
  26. Philippine National Bank
  27. Philippine Veterans Bank
  28. Planters Development Bank
  29. Rizal Commercial Banking Corp.
  30. Robinsons Savings Bank
  31. The Royal Bank of Scotland (Philippines), Inc.
  32. Security Bank Corp.
  33. Standard Chartered Bank
  34. Sterling Bank of Asia, Inc.
  35. Union Bank of the Philippines
  36. United Coconut Planters Bank

B. Non­Banks with Quasi­Banking License

  1. AB Capital and Investment Corp
  2. BPI Capital Corporation
  3. First Metro Investment Corporation
  4. Multinational Investment Bankcorporation

C. Non­Banks without Quasi­Banking License)

  1. BDO Capital and Investment Corporation
  2. VICSAL Investment, Inc.

Source: Bureau of the Treasury

What is FV and How Does It Affect Me?

FV or the Future Value of money is an estimate of how much value the money you have today will have in the future. As every body knows, the prices of goods change always. Typically, your one thousand pesos can buy more goods today than it will buy in the future. Prices of goods increase from year to year and the government tracks this and calls it the inflation rate. Thus, if your money does not grow to keep up with inflation, it will continue to decrease in value for the long term.

Let’s get into the nitty-gritty details. With inflation rate at around 5% for example, your P100,000 will have a future value as follows:

Year Value
0 100,000.00
1 95,238.10
2 90,702.95
3 86,383.76
4 82,270.25
5 78,352.62
6 74,621.54
7 71,068.13
8 67,683.94
9 64,460.89
10 61,391.33
11 58,467.93
12 55,683.74
13 53,032.14
14 50,506.80
15 48,101.71
16 45,811.15
17 43,629.67
18 41,552.07
19 39,573.40
20 37,688.95

The formula is:

(Future Value) = (Present Value) / ((1 + (Interest Rate))^(Year))

So for example, the value of 100,000 after 20 years at 5% inflation rate would be:

FV = 100,000 / ((1 + .05)^20) = P37,688.95

So what does this tell us? It simply tells us that we need a financial plan that will protect our money from inflation. If you do not plan ahead, you’ll wind up losing your hard-earned money.

The Rule of 72

In finance, the Rule of 72 is a fast way of estimating when an investment will double. You simply divide 72 by the interest rate to get the number of compounding periods. For example, if you would like to know how long your P100,000 will become P200,000 at an annual interest rate of 6%, simply divide 72 by 6 which gets you 12 years. At an annual interest rate of 8%, divide 72 by 8 and your money will double in 9 years. At an annual interest rate of 9%, divide 72 by 9 and your money will double in 8 years.

So how is this information useful to you? Consider the interest rates offered by banks for savings accounts in the Philippines. BDO and BPI are both offering savings accounts with an interest rate of 0.5% per annum. Using the Rule of 72, 72 divided by 0.5 will give you 144 years! Even with a time deposit account, you could get a rate of 4% which means your money will double in 18 years. Based on these projections, don’t you think you would be better off placing your money somewhere else?

Ok, this rule is useful, but, why do we use 72? The value 72 is a convenient choice of numerator, since it can be divided by 1, 2, 3, 4, 6, 8, 9, and 12 and it provides a good approximation for annual compounding at rates from 6% to 10%. At higher interest rates, the approximation using the Rule of 72 is less accurate. Nonetheless, remembering this rule will help you easily estimate how soon your investment or savings will double given a particular interest rate.