How to invest in OFW bonds

 When I wrote about the Bangko Sentral’s plan to revive its proposal to float $1-billion in bonds for overseas Filipino workers, the reactions were a mix of skepticism and curiosity.

Many did not trust the government, so lending money to this administration (which is, in effect, what you would be doing if you buy the bonds) did not make any sense. Others are concerned that the bonds are dollar-denominated, and with good reason because for the past year, the dollar has been losing value against every other currency of the world.

Personal finance expert Alijeffty Gonzales, however, raised some points that should also be considered by many of us.

First, it is an affordable instrument since retail treasury bonds are issued in various units starting with P5,000 for peso-denominated issuances to P100,000.

Second, while the Philippines may not smell so rosy right now because of the political wrangling going on, to most of us a government security still carries sovereign risk and is, technically “risk free.” That’s because, if worse comes to worst, the government can print money to pay you when the time comes to collect from it – as opposed to just any other company in the Philippine capital market universe, even one that may have a triple A rating.

All in all, based on the little information from the plan so far, the OFW bond appears to be a good instrument for diversifying one’s portfolio, Gonzales said.

He, however, pointed out to me another important tipping point: denominating the bond in dollars. “For it to be denominated in dollars would present some concerns, however, as the common consensus now even among the OFW community is that the dollar might not be a “stronger” currency going forward. There could be some risk in terms of loss of parity versus the peso especially if this is five years or more,” he said.

As with any investment decision, weighing the risks versus the advantages is very much a personal thing. As of now, it appears that despite the bullishness of the stock market, Filipino investors appear to have a predilection for bonds. Official figures from the Investment Company Association of the Philippines (ICAP) show that mutual funds have almost P53 billion in bonds as opposed to P13 billion in stock funds.

For those who want to invest in retail treasury bonds, whether designed for OFWs or not, here are the how-tos from AsianBondsOnline:

1. Watch out for announcements published in newspapers when retail treasury bonds will be issued. Unlike Treasury bills and Treasury bonds, RTBs do not have a particular schedule.
2. Pay close attention to companies that are chosen by the government to be underwriters or agents of the bond flotation. These information are often announced in newspapers and in the underwriter’s website.
3. Check with the underwriter or the agent on their application requirements, procedures and details on fees. These things vary from institution to institution.
4. If you want to know more details about RTBs, you may want to check this website: http://asianbondsonline.adb.org/how_to_buy_bonds/nd_page.php?Stage_Number=1&ABI_Market_Name=PH&Step_Number=1

Remember that these steps are for those who want to buy RTBs at issuance. The steps and how-tos for trading are different. Will write about that in another post.
 

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