Government Securities

[ck2001]

Hey everyone (especially to Kuya Danny):

I'm thinking of placing a chunk of my hard-earned savings into T-Bills, but I'm a bit hesitant though, primarily due to the government's inflating budget deficit. I'm not sure whether there's a correlation between T-Bills performance & the governments usual mismanagement of public funds. But I need advice on whether T-bills investment is a sound move or not. I can tolerate the lack of liquidy of this investment instrument for about 1-2 years. In short, I'm willing not to touch the money for that long.

And, by the way, which bank could be the best medium to enable this type of investment transaction?

Hope to get some replies soon. Thanks in advance!

[KuyaDanny]

Let's put it this way:

- the government has been mismanaging public funds since long before I was born, yet government securities are considered one of the safest investments one can own in this country. If ever you need money and need to sell your T-Bills, any bank wishing to continue doing business in this country will find a way to buy them from you.

- as to which bank is recommended: all universal banks and all commercial banks can sell them to you. They will only differ in the spread they will charge for the transaction. Find a bank you are comfortable dealing with. Unless your transaction is affected by fraud or incompetence within the bank (which is periodically examined by the BSP anyway), the T-Bills you will buy are almost as good as the cash in your pocket.

[AteRonee]

Originally posted by KuyaDanny
Let's put it this way:

- ...If ever you need money and need to sell your T-Bills, any bank wishing to continue doing business in this country will find a way to buy them from you.

- ...the T-Bills you will buy are almost as good as the cash in your pocket.

Just note, ck2001, that if you decide to liquidate your t-bill holdings before their specified maturity date, your "friendly bank" will buy them back at a price based on the prevailing discount rate in the secondary market and the remaining tenor of those bills. And if secondary market rates were falling, following the direction of the primary market, then you're most likely to get even less of your principal investment.

[ck2001]

Thanks Kuya Danny and Ate Ronee for your informative replies!

I wonder if you could provide more details about T-Bills. A few years back, I actually inquired at PNB about T-Bills and all I knew was that it required at least 50K pesos and the prevailing rate was much higher than savings rate(or even premium deposit rate). Does it still hold true today? Basically, like any investors as mundane as I am, I just wanna beat inflation and not allow the value of my savings to be deflated, should the time come when I will need the money. For the time period I gave, plus the T-Bills rate's drop lately, what period can you advice - 90 days (then reroll), 180 days (then reroll) or 360 days (then reroll)? By the way, what about bonds - are they ok and how long does one need to be involved in this sort of investment?

And as for the banks, I'm thinking about BPI - is it OK? Since it is T-Bills, the money goes to finance the government and the govt is indebted to me, right? So this means that I don't have to worry about the investment getting beyond the PDIC-insured amount; it's always secured, can it be assumed this way? Nga pala, once the T-Bills has matured, how do I redeem its value and the interest it has acquired - is it from BPI din ba? How much are the deductibles (tax, fees, doc stamps, etc.)?

Pasensya na kayo if I have so many queries. I find that you folks are the pundits when it comes to these matters. And, sorry this post deviates a little from the topic. I wanted to post this as a new topic - but there seems to be an internal server error when I clicked on "Post New Topic".

Hope to get some replies, thanks in advance.

[ck2001]

I wonder if you could provide more details about T-Bills. A few years back, I actually inquired at PNB about T-Bills and all I knew was that it required at least 50K pesos and the prevailing rate was much higher than savings rate(or even premium deposit rate). Does it still hold true today? Basically, like any investors as mundane as I am, I just wanna beat inflation and not allow the value of my savings to be deflated, should the time come when I will need the money. For the time period of about 1-2 years, plus the T-Bills rate's drop lately, what period can you advice - 90 days (then reroll), 180 days (then reroll) or 360 days (then reroll)? By the way, what about bonds - are they ok and how long does one need to be involved in this sort of investment?

And as for the banks, I'm thinking about BPI - is it OK? Since it is T-Bills, the money goes to finance the government and the govt is indebted to me, right? So this means that I don't have to worry about the investment getting beyond the PDIC-insured amount; it's always secured, can it be assumed this way? Nga pala, once the T-Bills has matured, how do I redeem its value and the interest it has acquired - is it from BPI din ba? How much are the deductibles (tax, fees, doc stamps, etc.)?

Hope to get some replies, thanks in advance.

(Note: I've posted this in another thread but I thought it's better if this stands as another topic)

[KuyaDanny]

ck2001 (is that Calvin Klein's new cologne?) - thanks for helping us keep this forum organized.

1) BPI is OK. But I'm biased, because I used to work in their Treasury department, the same guys who take charge of buying and selling T-bills. So I have first hand knowledge of how they operate, and I am satisfied enough to put my own money in the T-bills they sell.

2) Yes, you can assume that you are not lending your money to the bank. You are lending it to the Treasury of this republic. Your investment is *not* secured in the strict sense of the word, but I would say it is safe.

3) When you buy T-Bills from BPI, you will most likely not get possession of the actual certificate. There are several reasons:

a) BPI does not have the certificate in its possession, either. The certificate is kept in the vaults of some central repository (it used to be the Central Bank, I don't know if that is still true).

b) Even if BPI did have the certificate in its possession, it probably wouldn't risk handing it out to you, only to take it back later. Some people who bought government securities long ago often took possession of certificates and upon maturity, surrendered fake ones. The bank does not want this kind of headaches.

c) T-Bills often have high denominations, and you will probably buy a fraction of one bill. The Treasury will not redenominate the bill to accommodate you, and you cannot tear up the bill to reflect your own share.

What you will get is some sort of note from the bank that you own a share of some T-Bills, and the T-Bills are being kept for you. Upon maturity, the bank simply credits funds to your current or savings account.

[Kram]

Originally posted by ck2001
I wonder if you could provide more details about T-Bills. A few years back, I actually inquired at PNB about T-Bills and all I knew was that it required at least 50K pesos and the prevailing rate was much higher than savings rate(or even premium deposit rate). Does it still hold true today? Basically, like any investors as mundane as I am, I just wanna beat inflation and not allow the value of my savings to be deflated, should the time come when I will need the money. For the time period of about 1-2 years, plus the T-Bills rate's drop lately, what period can you advice - 90 days (then reroll), 180 days (then reroll) or 360 days (then reroll)? By the way, what about bonds - are they ok and how long does one need to be involved in this sort of investment?

And as for the banks, I'm thinking about BPI - is it OK? Since it is T-Bills, the money goes to finance the government and the govt is indebted to me, right? So this means that I don't have to worry about the investment
getting beyond the PDIC-insured amount; it's always secured, can it be assumed this way? Nga pala, once the T-Bills has matured, how do I redeem its value and the interest it has acquired - is it from BPI din ba? How much are the deductibles (tax, fees, doc stamps, etc.)?

Hope to get some replies, thanks in advance.

(Note: I've posted this in another thread but I thought it's better if this stands as another topic)



[CK2001]
The only authorized banks to do transactions in behalf of the National Treasury are the 1. The LandBank of the Philippines and 2. The Development Bank of the Philippines

You need to open an ordinary savings account with LBP (I don't know the procedure for DBP) with a maintaining balance of P500. You should tell the teller that you intend to invest in T-BIlls and you will apply for a ROSS account

You should the check your nearest LBP if their branch does accept T-Bills transactions .

On choosing among 91-day, 181-day or 365-day T-bill (scheme), It depends on you. Definitely, the longer you invest it, the higher it will earn interest. But if you are not certain if in the near future you will badly need the money, I suggest you invest in the 91-day t-bills.

The government has lowered the minimum amount of investment in T-bills to P5,000 from P50,000.

Investing on T-Bills is 100% risk-free. The government honors all its obligations. You need not worry about that - the government will pay every single centavo it owes you.

By the way, before investing, the Bureau of Treasury will ask if you want to have your interest right away, meaning the bills you will buy will be discounted already. You also have the option of receiving the interest on the date of maturity. After the date of maturity, you can ask the Bureau to "roll-over" your investment.

The interest rate is determined every Tuesday that's why there is no trading of T-bill on this day. The first trading day is always on a Wednesday.

As for the deductions, I know the interest is still subject to a 20% withholding tax.

I hope these will answer all your questions.

[KuyaDanny]

It appears my knowledge is a bit dated. I just got off the phone with the dealer at BPI. T-bill trading is now scripless. Paper certificates (the bills) are no longer issued. Inventory, custody, and trading are done by computer, through a system managed by the BSP.

So even if you wanted to get the T-Bills certificate to hold on to, you couldn't because they don't exist.

[Kram]

[KuyaDanny] Now I remember what the meaning of the ROSS I wrote earlier - Register of Scripless Security!

[Q]

Food for thought:

T-bill rates...
90 day: 9.65%
182 day: 10.53%
364 day: 11.34%

Inflation rate January 2001: 6.90%

Your real rate of return will be between approximately 2.7% to 4.4%, exclusive of taxes. Not earning much. Furthermore, if the peso weakens (for example, from 50 to 55, that equates to a 10% decline) it will reduce your purchasing power.

In addition to T-bills perhaps you may also want to consider a dollar or euro-based savings account. It may give you a hedge and greater purchasing power over the long term. Just my opinion.

-Q

[ck2001]

Thanks guys for your replies!

I'm quite surprised about the 20% tax - that means that the investment yields only about 8-9% if I bat for the 11.34% 364-day T-bill. Do the bankers get some commission on the amount, the same way brokers get a 0.5-1% commission on stocks purchases?

How about government bonds - is it a better (high-yielding) alternative than T-bills? Would this entail the same 20% tax?

(Kuya Danny, nope ck2001 is not a new cologne; it's my initials. But my personality is as sweet-scented as the cK colognes!)

[KuyaDanny]

The bankers/dealers do not make a commission. They make a spread on the interest rates, usually 1/8-1/4%.

I am not trying to put words in his mouth, but I think what Q was trying to say was although T-Bills may not make you rich, they are a good place to park your money while you are looking for more attractive opportunities.

As to government bonds, my position is that not all government agencies are equal when it comes to credit. We'll need to examine each individual issuer for us to make a good decision.

[Q]

Right on, Kuya Danny. I'd consider T-bills as a good SHORT-TERM investment, someplace to park your money, but for the long term you need to look for other opportunities.

The reason I mentioned the inflation rate and the depreciation scenario was because I wanted to emphasize the need to stretch those money resources as far as you can. Some personal insights: 1) my Tall Cafe Mocha at Starbucks just went up to P75 from P70 (+7%); 2) my Subway Sandwich Combo went up to P165 from P135 (+22%); and 3) jeepney fare has gone up to P4 from P2.50 (+80%).

The highest yielding T-bill was around 11.4% which means if I kept my money there, I wouldn't be able to maintain my lifestyle. I mentioned the dollar hedge, because it is just that. A hedge against these price increases, esp for imported items.

[Q]

Right on, Kuya Danny. I'd consider T-bills as a good SHORT-TERM investment, someplace to park your money, but for the long term you need to look for other opportunities.

The reason I mentioned the inflation rate and the depreciation scenario was because I wanted to emphasize the need to stretch those money resources as far as you can. Some personal insights: 1) my Tall Cafe Mocha at Starbucks just went up to P75 from P70 (+7%); 2) my Subway Sandwich Combo went up to P165 from P135 (+22%); and 3) jeepney fare has gone up to P4 from P2.50 (+80%).

The highest yielding T-bill was around 11.4% which means if I kept my money there, I wouldn't be able to maintain my lifestyle. I mentioned the dollar hedge, because it is just that. A hedge against these price increases, esp for imported items.

[Kram]

Originally posted by Q
Right on, Kuya Danny. I'd consider T-bills as a good SHORT-TERM investment, someplace to park your money, but for the long term you need to look for other opportunities.

The reason I mentioned the inflation rate and the depreciation scenario was because I wanted to emphasize the need to stretch those money resources as far as you can. Some personal insights: 1) my Tall Cafe Mocha at Starbucks just went up to P75 from P70 (+7%); 2) my Subway Sandwich Combo went up to P165 from P135 (+22%); and 3) jeepney fare has gone up to P4 from P2.50 (+80%).

The highest yielding T-bill was around 11.4% which means if I kept my money there, I wouldn't be able to maintain my lifestyle. I mentioned the dollar hedge, because it is just that. A hedge against these price increases, esp for imported items.

Hey Q, what's your company? It seems that you know very much about where to invest money. Are you in an investment firm?

[Q]

Hi, Kram.

I used to be in the investments industry. Actually, I spent most of my career in finance, but have since moved on. Got too boring after a while, as well as stressful. But investments and money management are nevertheless a hobby now.

[Kram]

Hey Q,

Actually dealing with investments is quite fascinating but of course the economic condition today is not favorable (for stocks and t-bills)to make a lot of profit.

I am an Economics graduate and work as a researcher in one of those "think tank" institutions. I could have entered a a stock brokerage after graduation but the timing was not that good.

Doing research, just like being in the investment industry is good but it sometimes gets too tiring.

What did you finish by the way? and your company?

[Q]

Working for a "think tank" sounds pretty interesting. An NGO perhaps? Or are you one of Stratfor's secret agents? ha-ha

I graduated with a BSBA in Finance. I recently left my last employer. At the moment, I'm not with any company, just doing some research and some traveling before I head back home to the States next month. Would like to tell you my previous employers, but I think I'll keep that a secret for now. ;)

[digital_potato]

hi! ive read threads about tbills pero dated year 2001 pa eh. if for example i have 10k, where do u suggest i invest it? t-bills or time-deposits? what yields a higher interest? im really dumb about this finance thingy. :D

as of the moment,i dont need the money pa naman because im still studying. im planning to invest it for a year just in time for my graduation. pero i want to invest it in a safe place.(no chance of losing a part of my investment). help please! thanks!

[digital_potato]

and one more thing. i checked out dbp's website and it says their rates for time-deposits are 10,000 and above = 5.875% per 30-45 days. does this mean that i actually get interests 8 times a year at the same rate?

is this better than commercial banks? and can anyone invest in dbp? thanks! (dami ko tanong) :D

[KuyaDanny]

Re: DBP

Not necessarily.

The interest rate for the 30-45 day deposit is good as of the time it was posted. When the deposit matures, you might get a lower, higher, or the same rate, depending on prevailing market rates and the DBP's need for funds.

Anyone can open an account with DBP. However, they do not have that many branches. Is their location convenient for you?

As to whethere the rate is lower or higher than the commercial banks, it's best to check both their rates and those of commercial banks, on the same day. Since you picked up the rates from a website, DBP's figures might already be obsolete.

[gutomlangyan]

Originally posted by digital_potato
and one more thing. i checked out dbp's website and it says their rates for time-deposits are 10,000 and above = 5.875% per 30-45 days. does this mean that i actually get interests 8 times a year at the same rate?

is this better than commercial banks? and can anyone invest in dbp? thanks! (dami ko tanong) :D


Almost 6% in 30 days? not likely. These rates are interest per annum, and if you deposit money with them you'll probably get something like less than half a percent.

[gutomlangyan]

Originally posted by gutomlangyan



Almost 6% in 30 days? not likely. These rates are interest per annum, and if you deposit money with them you'll probably get something like less than half a percent for 45 days

[Hulk]

Ok first of all let's differentiate both investment vehicles.

A Treasury Bill is a direct obligation of the National Government. This means that the borrower is the government. The likelihood of default is very, very small because in the worst case, the govt. could print pesos.

Most banks have large minimum amount requirements for Tbill transactions. In the institution I've worked before it was P300,000. However thanks to the Estrada Administration, there's such a thing as SDT or Small-Denominated Treasury bills or Treasury Notes(one of the few good things that came out during his stay). The minimum for these bonds, if I remember correctly is P5,000. You can purchase these bills or bonds from the Landbank.

Once you purchase it, you will be asked to open a cash account and a securities account. Sa securities account mo icre-credit yung securities when you buy it, while your cash account will be credited on maturity and on coupon payment dates, kung Treasury Notes.

One important thing to note about SDTs compared to normal T-bills is that SDTs are not tradeable so you have to wait until the maturity date of the bond before you can get your money.

A time deposit is a direct obligation of the bank. Your credit risk depends on the financial standing of the bank. The process is almost the same, you simply open an account with the bank and deposit your money.

Interest rates. All rates quoted you are on a per annum basis. The rates vary depending on the level of interest rates. SDT rates are fixed, they are set a few basis points below the average auction rate during the week. Time deposit rates are based on the discretion of the bank. All interest income are subject to 20% FWT. Medyo may kaibahan lang ng computation ang T-bills kasi true discount method ang ginagamit.

Hope that helps.


:frank:

[StoneFree]

I have 1 mio Php and I want to invest it in government securities. Which one should I go for: RTBs, FXTNs, TBills? I have checked out this website http://www.mart.com.ph but I dont really have a clue what to do next. Any suggestions, ideas where to get info on current rates, pros and cons etc? Thanks.

[KuyaDanny]

These are all securities issued by our Treasury, and are obligations of the government. The basic differences between these securities have to do with:

a) tenor (maturity)
b) minimum investment size

Treasury bills have a maximum maturity of one year. FXTNs and RTBs can go up to 20 years. Interest (coupon) is paid semiannually on FXTNs, and quarterly on RTBs. For an investment size of P1.0 million, you can buy any of the three classes.

Because there are differences in tenor, there may also be differences in yields between the three classes at any given time.

To start investing in government securities with the kind of money you have, I would suggest opening an account with a licensed securities dealer (most big banks have subsidiaries who do this, such as BPI Capital Corporation). A government securities dealer can make it easy for you to sell your holdings should you need money before the securities mature. And with a P1.0 million relationship, you can get good service and plenty of useful information and advice on interest rates and market trends.

[Bea19]

KuyaDanny,,,singit lang ako...if you want to invest sa mga securities na yan I would suggest the Philam Bond Fund..it contains Treasury bills, notes and bonds, plus may mga ROP's cash and commercial papers na sa portfolio nya. Minimum investment is P5k with a term of 1 year. 8% net of taxes ang conservative projection in a year. atleast actively managed yung portfolio mo and you dont have to buy the papers separately.Btw, we performed 9.45% net last year ;)

[pal2iwara]

any one of you knows how treasury bills work? info on the income..where to go? website? anything you know..thanks.. :redsmile:

[Prof. Umbridge]

treasury.gov.ph

[pal2iwara]

yey..thanks prof.. :beam:

[Haloperidol]

can someone tell me here about t-bills parang interesado po ako eh.

thanks

[wcf25658]

Hi there,

Treasury bonds are investment outlets issued by the government. This is a low-risk investment because it is the government that guarantees the return. It works like a time deposit placement however this kind of investment requires a big amount of initial placement. That's why it is the banks that buys these investments and the banks in turn give it to their depositors in retail. However, to earn, they "lower" the return of the investment. You may want to look at www.inq7.net INQ7money section to learn more about personal investing. Just go to their personal finance section.

Hope I was able to help...

[muff_puff]

I watched ANC News this aftn, Mr. Gus Cosio of TREC Global was a guest and he talked about the benefits of investing in fixed income investment tools. I'm really very interested. Pardon my ignorance, but what are the other fixed income tools other than government securities? What are they actually? How do u go about it? What are the rates of return? How long are the maturity periods? What's the minimum amount of investment? Also, I want to know what mutual funds are and how do u benefit from them. Thanks so much. Ur insights will turly be appreciated. :)

[nortonantivirus]

hello, interesado po ako sa treasury bills, pwede po bang paki-explain tungkol dito, ano po bang benefits ang makukuha ko dito? may disadvantages po ba ito? saang banko po ba ito ino-offer? Okey bang iinvest ang pera dito? May season din po ba ito? Pls. explain nyo naman po ito sa akin, coz im totally clueless bout this one. :confused: :confused: :confused: :confused: :confused:

[camerlengo]

tbills - short term borrowing by the govt
tenor - 91 182 and 364 days
bought at discount to par
interest earned = par - cashout
all banks offer this
supposed to be "risk free" unless the govt defaults
which lately is becoming more likely with the fiscal crisis

[FutureGizmo]

Go to your nearest bank and ask for more info about this. They'd be willing to accommodate you. Or visit each bank's website, almost all of them has info on the t-bills they offer.

[chip-L2]

From Investopedia (www.investopedia.com):
Government Security - A government debt obligation (local or national) backed by the credit and taxing power of a country with very little risk of default.

This includes short-term treasury bills, medium-term treasury notes, and long-term treasury bonds.

My experience:
Government securities can be held to maturity or traded depending on one's knowledge and appetite for risk.

There are other fixed income securities or bonds issued by private corporations. However, these are rarely sold/traded so you'll probably have to hold these bonds until maturity or the issuer's default. The nice thing about corporate bonds is that you get paid before equity holders in case of a default. ;) The only local companies that issue bonds are the giant corporations also present in the Phil. Stock Exchange (SM Prime, San Miguel, Ayala Land). From experience, I haven't gotten the chance to get into a local company's bonds. I believe it's because most of the bonds they issue are in foreign currencies.

If you want to see how the pros in the bond market invest, study how PIMCO plans to invest its portfolio. Bill Gross, its investment manager, is one of the best around. He regularly writes a newsletter to investors.

My suggestion right now, for March 2005, is to invest in the short term (less than 90 days) because interest rates will undoubtedly go up. If interest rates go up, the value of your bonds will go down (bond prices and interest rates or yields are inversely related). If you hold short term bonds, hold until maturity until you can buy newer issues with higher rates.

If you have a large enough investable amount, you can explore laddering. It's investing in bonds of different maturities. You can invest in shorter term securities with some amount but put some of your savings into longer term securities that earn you more interest.

[nortonantivirus]

ask ko lang po...halimbawa po gusto ko maginvest sa t-bills, magkano naman po, *** pinakamababa po, halimbawa po meron akong mga 5k- 10k, pwede na ba un as investment sa t-bills, pano naman po ang computation nun... thanks po!!!

[dalee]

up for this thread! *okay*