• In finance, a bond is an instrument of

indebtedness of the bond issuer to the holders.

(Wikipedia.com)

• A bond is a fixed income instrument that

represents a loan made by an investor to a
borrower (typically corporate or governmental).

• (Investopedia.com) Individuals who want to

invest by loaning their money can do so by
buying bonds and becoming a creditor (again very
small) of the business.
 How to Invest in Bonds?

Most of us are used to borrowing money in

some capacity, whether it's mortgaging our
homes or bumming a few bucks off a friend.
Similarly, companies, municipalities, and the
federal government borrow money, too.
How? By issuing bonds.
 How bonds work?

• Bonds are a way for an organization to

raise money. Let's say your town asks you
for a certain investment of money. In
exchange, your town promises to pay you
back that investment, plus interest, over a
specified period of time.
 How to make money from bonds?

• There are two ways to make money by investing

in bonds.
• First, is to hold those bonds until their maturity
date and collect interest payments on them. Bond
interest is usually paid twice a year.
• Second, way to profit from bonds is to sell them
at a price that's higher than what you pay initially.
 Bond prices can rise for two main reasons.

• If the borrower's credit risk profile improves so

that it's more likely to be able to repay the bond at
maturity, then the price of the bond typically rises.

• Also, if prevailing interest rates on newly issued

bonds go down, then the value of an existing
bond at a higher rate goes up
 How to buy bonds?

• Unlike stocks, most bonds aren't traded

publicly, but rather trade over the counter,

which means you must use a broker.

• Treasury bonds, however, are an exception --

you can buy those directly from the U.S.

government without going through a middleman.

 BROKER
A broker is a person or firm
who arranges transactions
between a buyer and a seller
for a commission when the
deal is executed. A broker
who also acts as a seller or as
a buyer becomes a principal
party to the deal.

EXAMPLE: brokers in
insurance, real estate, vehicle
sales, etc
What are different types of bonds available in
the Philippine market?

• There are two general types of bonds

that you can acquire: government bonds
and corporate bonds.
Government or
treasury
securities
Government bonds
are issued by the
Philippine
government
through the Bureau
of the Treasury,
and that explains
that they are also
known as treasury
bonds.
• They are offered in two different ways:
through auction and directly to the
investing public.
In auctions, the
bonds are held up
for bidding
commonly to
institutional
investors who
would then have the
option to make it
available to the
general public.
•directly to the public
without going
through the bidding
process.

Examples are
Premyo bonds that
were issued in the
last quarter of 2019
and the RTB 2020 as
mentioned earlier.
The different government securities.
• Treasury bills are shorter in term, usually less than a
year. Interest is not paid, instead the bills are priced at a
discount.
• Fixed Rate Treasury Notes (FXTN) pays semi-annual
interest or as described during the offer.
• Retail treasury bonds (RTB) are longer than FXTNs.
They usually carry quarterly interest payments.
• Republic of the Philippines (ROP) bonds are dollar-
denominated debt instruments.
 Corporate
retail bonds
Corporate bonds are
issued by private
corporations that
are publicly listed on
the stock exchange.
Announcements are
made in major
broadsheets and
newspapers in the
country, inviting
investors who may
want to get them.
 Advantages of bonds

• Fixed income.

• Less volatile.

• Comparatively less risky.

• Liquid.

• Diversify risk portfolio.

• Interest is better than banks.

 What are the risks in bond investing?

• Taxable. Whatever you earn from them is subject to capital gains tax of 20%.

• Risk of default, also called credit risk, is a situation where the company cannot pay the interest on

the due date or the principal amount on maturity.

• Interest rate risks. When interest rate (which is set by the Bangko Sentral ng Pilipinas) increases,

the yield that you get from bonds decrease.

• Liquidity risks.

• Inflation risk. When inflation spikes, the purchasing power of the fixed income that you get is

lessened.

• Reinvestment risks. When the central bank lowers the interest rate, your earnings when you

reinvest the fixed income derived from bonds may also be less.

• Opportunity risk. Studies show that stocks outperforms bonds in the long term, and yet during

market volatility and recessions bond yields can be attractive.

 What are the potential earnings of
bonds?
• Your potential earnings are limited to the interest that is
set when you acquire them and the taxes. Interest is
higher the longer the maturity is, and it is generally lower
when it the maturity is shorter. Other factors that might
also affect your income would be the prevailing interest
rate, inflation, credit-worthiness of the issuer, etc.
 STOCKS
• Stocks are shares of ownership in a company.
When you buy stocks of a publicly listed
company, you become a stockholder or
shareholder of a company. In other words, you
become a part-owner of that company.
• As a part-owner, you participate in the
company’s growth and future profits.
Conversely, you may also lose if the company
suffers a loss or performs below market
expectations.
• Other terms for stocks are “shares” or
“equities”. In Filipino, stocks are called “sapi”,
which means to “join” or to “partake
 Types of STOCKS
• a. Common stock – It is a security usually
purchased for participation in the profits and
control of ownership and management of the
company. Common stocks are also known as
“ordinary shares.”
• b. Preferred stock – It is a security whereby the
holder has a higher claim on the assets and
earnings of the company. Preferred stocks are
also known as “preference shares.”
 According to OWNERSHIP
• Common shares may further be classified into:
a. Class A – These are stocks that can be
exclusively traded by Filipino investors.
• b. Class B – These are stocks that can be
bought and sold by both Filipino and foreign
investors. According to SECTORS
 According to SECTORS
• Stocks listed and traded on the PSE are classified into six
(6) sectors:
• 1. Financial Sector – includes companies engaged in
banking, investments, and finance.
• 2. Industrial Sector – includes companies involved in the
following: a. Electricity, Energy, Power, and Water b. Food,
Beverage, and Tobacco c. Construction, Infrastructure,
and Allied Services d. Chemicals e. Diversified Industrials
• 3. Holding Firms Sector – includes companies or firms that
control or manage partial or complete interest in another
company or other companies. Usually, these companies
do not produce goods or services itself; rather, its purpose
is to own shares of other companies.
• 4. Property Sector – includes companies
involved in land and property development
• 5. Services Sector – includes companies
involved in the following: a. Media b.
Telecommunications c. Information Technology
d. Transportation Services e. Hotel and Leisure
f. Education g. Diversified Services
• 6. Mining and Oil Sector – includes companies
engaged in mineral extraction, oil exploration,
extraction and production
 According to CHARACTERISTICS
• a. Blue Chip stocks – are shares of well-established
and financially sound companies that have
demonstrated their ability to pay dividends in both
good and bad times
• B. Income stocks – are shares of those companies
with good dividend payment history due to steady
profits.
• Growth stocks – also called “glamour stocks”, are
shares of corporations whose earnings are expected
to grow at an above-average rate relative to the
market
• Defensive stocks – are shares that provide
regular dividends and stable earnings,
regardless of the overall condition of the stock
market.
• Cyclical stocks – are those sensitive to
business conditions or cycles strongly tied with
the economy’s performance.
• Speculative stocks – are those that rise quickly
when economic growth is strong and falls
rapidly when growth is slowing down.
 How to invest in STOCKS?
• 1. Choose your STOCKBROKER.
• 2. Open a TRADING ACCOUNT with your
chosen stockbroker.
• 3. Discuss with your stockbroker the stocks
you wish to BUY or SELL
• 4. Give ORDERS to the stockbrokers.
• 5. Get the CONFIRMATION RECEIPT.
• 6. Deliver/Pay before SETTLEMENT DATE.
• 7. Receive PAYMENT.
• Traditional brokers are those who assign a
licensed salesman to handle your account and
take your orders via written instruction or
through a phone call.
• Online brokers, on the other hand, are those
whose main interface with their customer is
through the Internet