TEAM ZEALOTS

BONDS
PRINCIPLES OF FINANCE
 AT THE END OF THE DISCUSSION,
STUDENTS WILL BE ABLE TO:

Learning define bonds

distinguish bonds from stocks

Objectives
determine the benefits and risk
of investing bonds
identify the types of bonds and
BONDS its examples
know the requirements
needed to invest bonds
 BONDS
A security representing a loan of
money from a lender to a
borrower for a set time period,
which pays a fixed rate of
interest.

You earn in two ways:

1. Interests (coupon rate)
2. Value Appreciation
WHY INVEST IN BONDS?

CURRENT INCOME CAPITAL GAINS

At times, they can provide capital
They can provide current income for
gains (or losses) for more aggressive
conservative investors.
investors.

TAX-FREE PRESERVATION
They can be used for preservation
Some bonds can provide tax-free
and long term accumulation of
income.
capital.
RISKS OF INVESTING BONDS
INTEREST RATE RISK REINVESTMENT RISK
a bond poses a reinvestment risk to
Generally, rising interest rates will result in
investors if the proceeds from the bond or
falling bond prices, reflecting the ability of
future cash flows will need to be reinvested
investors to obtain an attractive rate of
in a security with a lower yield than the
interest on their money elsewhere.
bond originally provided.

INFLATION RISK DEFAULT RISK

Inflation reduces the purchasing If the bond issuer defaults, the investor
power of a bond’s future coupons and loses part or all of their original investment
principal. plus any interest they may have earned.
STOCKS VS. BONDS
TYPES OF BOND (MATURITY-BASED
&ISSUER-BASED )
1. MATURITY-BASED BONDS-
Bonds categorized based on the length of time it will
mature.
A. TREASURY 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: CONS;

Matures in less than a year (shorter

investment time frame)
Doesn’t pay income or coupon
Sold at a discount from their face value but interest
the investor will get the full amount upon
maturity (works like a zero-coupon bond)
B. TREASURY 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 GOVERNMENT MUNICIPAL CORPORATE

SECURITIES BONDS BONDS BONDS
Bonds that are issued Bonds issued by Bonds issued by
by various the local public and
Bonds issued by government agencies
government units private
the Bureau of like HDMF,
Government National
(LGUs). companies.
Treasury
Mortgage Association
(GNMA), Federal Low(er) default Potentially
National Mortgage risk higher returns
Association, and Low volatility
others. Highly liquid
 How to Invest in Bonds in the
Philippines
REQUIREMENTS:

2 VALID IDs TAX IDENTICATION

NO.
Documents that provide bank
Minimum initial
account information (e.g check
investment book or pass book)

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 INVESTMENTS
FOR CORPORATE RETAIL BONDS,
the typical minimum investment is Php50,000.

RETAIL TREASURY BONDS

can be purchased for as low as Php5,000 minimum capital.

TREASURY BILLS
typically require a minimum of Php50,000 investment as well.