Will overseas Pinoys buy $1 billion OFW bonds?

Doris Dumlao wrote an interesting story today in the Philippine Daily Inquirer:

MANILA, Philippines–THE GOVERNMENT has revived plans to offer as much as $1 billion in retail treasury bonds to overseas Filipino workers as proposed by the Bangko Sentral ng Pilipinas (the Philippine central bank) to harness large remittance flows for productive investments.

BSP Managing Director Ma. Cyd Amador said the BSP and the Bureau of the Treasury have resumed discussions on the proposed OFW bonds. “It looks like they (Treasury officials) are more open this time around,” Amador said.

She said the BSP and the Overseas Workers Welfare Administration were considering holding overseas roadshows on financial literacy, focusing on countries that host big Filipino communities.

Click here to read the rest of the article.

Most interesting points:

1. Government has now realized the importance of teaching Filipinos, especially OFWs, about financial literacy. Enough about politics, let’s learn how to keep our heads above the water by learning how to save and invest.
2. Can investing in bonds really help OFWs reintegrate into the economy? Alone, it can’t, but together with a well-thought out plan (and lesser corruption and better business environment), maybe. With the dollar continuing to weaken, some economists say that more Filipinos will be coming back home. What will they come home to? A manufacturing sector that is hollowing out as more companies rely on automation and technology rather than hiring people, thus no employment opportunities. Entrepreneurship and investing wisely will increasingly be a popular option.
3. Bangko Sentral expects remittances to slow down significantly next year (as in 5% from 15%) and its study shows OFWs send less home when the economy is not doing so great.

For those who are interested in buying OFW bonds, better read this article by Noet Ravalo. It’s a bit dated (he wrote it in 2003 for then INQ7.net) but you will still learn a lot from the principles he explained:

The danger of getting too complacent with bonds

Here’s an excerpt:

Many people have the impression that investing in bonds is fairly straightforward and that bonds are a no-brainer no-risk investment.

The truth is anytime you buy in or unload before maturity, there are enough pitfalls to cause serious financial ruin.

Bonds are long-term debts issued either by a country or by a corporation. There is no absolute definition to the qualifier “long-term” but we associate bonds as those with maturities longer than one year.

Anything shorter than a year’s maturity is referred to as a “bill”. This is why you hear terms like Treasury bills (T-bills) and Treasury bonds (T-bonds).

The terminology though can be extra confusing in the Philippines. Instead of a corporate bond, for example, tax considerations have instead coined the phrase Long-Term Commercial Paper (LTCP).

As a long-term debt, bondholders receive a periodic payment called “coupon”. These coupons are paid to the bondholder every six months.

If you plan to hold a particular bond from the time it is issued, to its maturity date, the return you get can be summarized by the coupon.

But very few hold a long-term instrument for its full term. Normally, investors buy and sell during the life of the bond and this trading activity leads us to the issue of price fluctuation. 

Happy investing!
 

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