Cañete, Miel V.

OPM201_C

Bond Decision

A. Which is true in the Philippines in terms of bond issuance - there is more

government bonds than corporate bonds or there are more corporate bonds than
government bonds? As an investor, what will this tell you?

In terms of bonds issuance in the Philippines, there is more government bonds than
corporate bonds. It is because government bond is more flexible than corporate
bonds, and corporations’ dwell more in stock market.

Being an investor, this would show that the government seeks more funds to finance
projects that would give them great return in investments. The government of the
Philippines manages its financial resources by lending money from investors to
maximize the revenues from programs and projects that they envision to do.

B. What are the different bonds in the Philippines available for investment?

There are a lot of bonds available in the Philippines for investment. These bonds are
categorized into two; Maturity-based and Issuer-based.

Under maturity-based, there are two kinds; treasury bills and treasury bonds.
Treasury Bills matures in less than 1 year. They are sold at a discount but do not pay
income or coupon interest. Treasury Bonds, on the other hand, matures in more than
1 year. Unlike T-bills, treasury bonds pay coupon interest but carry higher risk
because of its longer length of maturity.

For issuer-based bonds, there are four kinds; treasury securities, government bonds,
municipal bonds, and corporate bonds. First, treasury securities are issued by the
Bureau of Treasury. It has low risk since they are backed by the full faith and credit
of the government but it has a lower yield compared to other bonds. Second,
government bonds are issued by various government agencies. Like treasury
securities, it has a very low risk but also have lower interest rates. Third, municipal
bonds are issued by the local government units. It has the same characteristics as
Cañete, Miel V. OPM201_C

government bonds and treasury securities wherein they are low risk and low yield.
And lastly, corporate bonds are issued by public and private companies. It has higher
returns compared to government, municipal. and treasury bonds but also have higher
default risk.

There is also another bond offered in the Philippines, the ROP Bonds. These are
foreign currency denominated bonds (in USD) issued by the Republic of the
Philippines with fixed rate coupon payments at a specified future date.

C. What are the two ways that treasury bonds are offered?

Generally,  there are two common ways that treasury bonds are offered. First is

through buying them directly from  Treasury  Direct which is the
official  Treasury  Department website for managing Treasury bonds, or from an
online broker.

D. Is there no risk of default when you purchase a government bond?

Government bonds  are usually viewed as low-risk investments, because the

likelihood of a government  defaulting on its loan payment tends to be low but risks
can still happen such as credit risks and interest rate risks.

E. If you are to choose between stocks and bonds as an investment, what will it
be and why?

Considering the current economic downturn where interest rates continues to

fluctuate and being risk-averse, I will invest in bonds. This prioritizes the
preservation of capital over the potential for a high return. Investing in stocks can
give you high returns but it would take so much of my time looking at the movement
of stock prices, whereas, investing in government bonds gives you low returns but
offers you minimal to no risk most especially if we are transacting with trusted and
stable institutions.