PRESENTATION OF CONTENT

BANKER’S ACCEPTANCE
 It is a negotiable piece of paper that functions like a post-dated check, although the bank rather
than an account holder guarantees the payment.
 It is used by companies as a relatively safe form of payment for large transactions.
 It is also a short-term debt instrument, similar to a U.S. Treasury bill, and is traded at a discount
to face value in the money markets.
 It is known as bills of exchange.
 It requires the bank to pay the holder a set amount of money on a set date. It is most commonly
issued 90 days before the date of maturity but can mature at any later date from one to 180
days. They are typically issued in multiples of $100,000.
 BAs are issued at a discount to their face value. Thus, like a bond, they earn a return. They also
can be traded like bonds in the secondary money market. There is no penalty for cashing them
in early, except for the lost interest that would have been earned had they been held until their
maturity dates.

TREASURY BILLS, NOTES AND BONDS

 Treasury bills, notes, and bonds are fixed-income investments issued by the U.S. Department of
the Treasury. They are the safest investments in the world since the U.S. government
guarantees them. This low risk means they have the lowest interest rates of any fixed-income
security.
 The federal government offers three categories of fixed-income securities to consumers and
investors to fund its operations: Treasury bonds, Treasury notes, and Treasury bills. Each
security has a different rate at which it matures, and each pays interest in a different way.
 One thing they all have in common, though, is their reputation of being based on the full faith
and credit of the United States government. Investors can expect a high degree of safety and a
steady, but unspectacular profit from each of these securities. Upon maturity, these bonds,
notes, and bills return their face value.

TREASURY BILLS
 Treasury bills, or T-bills, have the shortest terms of all. They're issued with maturity dates set at
four, eight, 13, 26, and 52 weeks.
 T-bills are auctioned off to investors at a discount to par or face value. The investor's return is
the difference between the par value and the discount price paid at purchase.
 The U.S. Treasury also offers a short-term security that is a lot like a T-bill called a Cash
Management Bill (CMB). The main difference between the two, though, is that a CMB has a
much shorter maturity date, ranging anywhere between seven days to three months. These can
also be purchased in $100 increments.

TREASURY NOTES
 Also known as T-notes, treasury notes, are similar to T-bonds, but are offered in a wide range of
terms as short as two years and no longer than 10 years.
 T-notes also generate interest payments twice a year. But because the terms offered by T-notes
are lower than T-bonds, they offer lower yields.
 The 10-year T-note is the most closely watched government bond. It is used as a benchmark
rate for banks to calculate mortgage rates.
 Treasury notes also are auctioned by the U.S. Treasury and are sold in $100 increments. The
price of the note may fluctuate based on the results of the auction. It may be equal to, less
than, or greater than the note's face value.
TREASURY BONDS
 Treasury bonds, called T-bonds for short, are often referred to as long bonds because they take
the longest to mature of the government-issued securities.
 They are offered to investors in a term of 30 years to maturity.
 Purchasers of T-bonds receive a fixed-interest payment every six months. They pay the highest
interest rates of the three types of government securities because they require the longest term
of the investment. For the same reason, the prices at which they are issued fluctuate more than
the other forms of government investment.
 Treasury bonds are issued at monthly online auctions held directly by the U.S. Treasury, where
they are sold in multiples of $100. A bond's price and its yield are determined during the
auction. After that, T-bonds are traded actively in the secondary market and can be purchased
through a bank or broker.
 Individual investors often use T-bonds to keep a portion of their retirement savings risk-free, to
provide a steady income in retirement, or to set aside savings for a child's education or other
major expenses. Investors must hold their T-bonds for a minimum of 45 days before they can be
sold on the secondary market.

DIFFERENCE AMONG TREASURY BILLS, NOTES, AND BONDS

 The difference between bills, notes, and bonds are the lengths until maturity.
 Treasury bills are issued for terms of less than a year.
 Treasury notes are issued for terms of two, three, five, seven, and 10 years.
 Treasury bonds are issued for terms of 30 years.

HOW TREASURYS WORK?

 The Treasury Department sells all bills, notes, and bonds at auction with a fixed interest rate.
When demand is high, bidders will pay more than the face value to receive the fixed rate. When
demand is low, they pay less.
 The Treasury Department pays the interest rate every six months for notes, bonds, and TIPS.
Bills only pay interest at maturity. If you hold onto Treasurys until term, you will get back
the face value plus the interest paid over the life of the bond. (You get the face value no matter
what you paid for the Treasury at auction). The minimum investment amount is $100. That
places them well within reach for many individual investors.
 Don't confuse the interest rate with the Treasury yield. The yield is the total return over the life
of the bond. Since Treasurys are sold at auction, their yields change every week.
o If demand is low, notes are sold below face value. The discount is like getting them on sale.
As a result, the yield is high. Buyers pay less for the fixed interest rate, so they get more for
their money.
o However, when demand is high, they are sold at auction above face value. As a result, the
yield is lower. The buyers paid more for the same interest rate, so they got less return for
their money.

HOW TO BUY TREASURYS?

 There are three ways to purchase Treasurys.
a. Noncompetitive Bid Auction. That's for investors who know they want the note and are
willing to accept any yield. That's the method most individual investors use. They can go
online to TreasuryDirect to complete their purchase. An individual can only buy $5 million
in Treasurys during a given auction with this method.
b. Competitive Bidding Auction. That's for those who are only willing to buy a Treasury if they
get the desired yield. They must go through a bank or broker. The investor can buy as much
as 35% of the Treasury Department's initial offering amount with this method.
c. The third is through the secondary market, where Treasury owners sell the securities
before maturity. The bank or broker acts as a middleman.
HOW TREASURYS AFFECT THE ECONOMY?
 Treasurys affect the economy in two important ways.
1. First, they fund the U.S. debt. The Treasury Department issues enough securities to pay
ongoing expenses that aren't covered by incoming tax revenue. If the United
States defaulted on its debt, then these expenses would not be paid. As a result, military
and government employees wouldn't receive their salaries. Recipients of Social Security,
Medicare, and Medicaid would go without their benefits. It almost happened in the
summer of 2011 during the U.S. debt ceiling crisis.
2. Second, Treasury notes affect mortgage interest rates. Since Treasury notes are the safest
investment, they offer the lowest yield. Most investors are willing to take on a little more
risk to receive a little more return. If that investor is a bank, they will issue loans to
businesses or homeowners. If it's an individual investor, they will buy securities backed by
the business loans or mortgage. If Treasury yields increase, then the interest paid on these
riskier investments must increase in lock-step. Otherwise, everyone would switch to
Treasurys if added risk no longer offered a higher return.

TREASURY BILLS, NOTES AND BONDS IN THE PHILIPPINE SETTING

 Government Securities (GS)
 These are unconditional obligations of the Republic of the Philippines.
 These are relatively free from credit risk because the principal and interest are guaranteed by
the National Government, backed by the full taxing power of the sovereignty as the issuer and
different banks as the selling agents. However, there may be market risks due to changes in the
interest rates.
 The Philippine Government issues both Peso and US Dollar denominated securities.
 There are two kinds of Peso Government Securities (GS):
1. Treasury Bills - are obligations with maturity of one year or less, typically issued at a
discount to the maturity value.
2. Treasury Bonds - are obligations with maturities ranging from 2 years to 25 years,
typically issued at par with periodic coupon payments to be made up to final maturity.
Some bonds may be issued without coupons and these are known as zero coupon bonds.
 As for the dollar denominated GS, it has tenors of up to 25 years. Interest rates are paid semi-
annually based on a fixed coupon rate.
 GS are listed on the Bloomberg platform and can be redeemed prior to maturity at prevailing
market rates, subject to availability of buyer. Pero and Dollar Denominated GS are not insured
by the Philippine Deposit Insurance Company (PDIC).

 Peso Denominated Securities

 Treasury Bills (TBills), Fixed Rate Treasury Notes (FXTNs) and Retail Treasury Bonds (RTB)
 Minimum investment – Php100,000.00
 Can be used as collateral for loan
 Interest rates subject to prevailing market rate
 Subject to the following fees:
For securities with remaining term of 365 or lower:
 Broker’s fee = Face Value x 0.10% x Term/360 or PHP200.00 whichever is higher
 Trading platform fee = Face Value x 0.0025% x Term/365
For securities with remaining term of more than a year:
 Broker’s fee = Face Value x 0.10% or PHP200.00 whichever is higher
 Trading platform fee = Face Value x 0.0025%
*Fees stated above are subject to change without prior notice
a. Treasury Bills (TBills)
 Tenor – 1 year and below
 Issued at a discount; subject to 20% final tax
 b. Fixed Rate Treasury Notes (FXTNs)
 Tenor – 2 to 23 years remaining tenor
 Interest – payable semi-annually throughout the tenor if held until maturity;
subject to 20% final tax (except for Tax Exempt Institutions)
c. Retail Treasury Bonds (RTB)
 Tenor – 2 to 24 years remaining tenor
 Interest – payable quarterly throughout the tenor if held until maturity; subject to
20% final tax (except for Tax Exempt Institutions)

 US Dollar Denominated Securities

 Republic of the Philippines (ROP) Bond
 Minimum investment – US$100,000.00
 Tenor – 1 to 35 years remaining tenor
 Interest – payable semi-annually throughout the tenor if held until maturity
 Tax – Non-taxable
For securities with remaining term of 365 or lower:
 Broker’s fee = Face Value x 0.10% x Term/360 or PHP200.00 whichever is higher
 Trading platform fee = Face Value x 0.0025% x Term/365
 Clearstream safekeeping fee of 0.8bps per annum based on account balance
For securities with remaining term of more than a year:
 Broker’s fee = Face Value x 0.10% or Php200.00 whichever is higher
 Trading platform fee = Face Value x 0.0025%
 Clearstream safekeeping fee of 0.8bps per annum based on account balance
*Fees stated above are subject to change without prior notice

REFERENCES:

Online Sources
 https://www.investopedia.com/terms/b/bankersacceptance.asp
 https://www.dbp.ph/corporate-and-institutional-banking/treasury-products/government-
securities/
 https://www.investopedia.com/ask/answers/033115/what-are-differences-between-treasury-
bond-and-treasury-note-and-treasury-bill-tbill.asp
 https://www.thebalance.com/what-are-treasury-bills-notes-and-bonds-3305609