Investing 101: What You Need to Know About Retail Treasury Bonds (RTB)

“This investment is risk-free.” I know what you’re thinking, this sounds like an opening statement of an investment scam spiel—and you’re probably right. How can an investment be “risk-free” anyway?

Conventional investing wisdom dictates that you need to take on risk if you want returns, and we’re not contesting that here. But as with all conventions that we take as the norm, there is an aberration—an exception to the rule, if you may.

Enter Retail Treasury Bonds.

Retail Treasury Bonds are medium to long-term investments issued by the Philippine government which forms part of their program to make securities available to small investors. These investments are widely known as affordable and low risk. But just how “low risk” are they?

Whether you’re an individual or a corporation, RTBs allow you to invest and grow your money with VERY low risk of losing. It’s considered a fixed income security, which basically means that you earn a fixed interest rate based on the principal market given on a quarterly basis.

Are Retail Treasury Bonds Really Risk-Free?

The short answer is no—nothing is ever risk-free—but this is as close as you can get. The RTBs are direct and unconditional obligations of the Philippine government backed by its resources making it “virtually risk-free.” This means that your principal payment is guaranteed safe.

Of course some factors can still affect the performance of your RTBs’ such as inflation rates, the bond’s maturity period, intermediation cost, and fiscal policy positioning. And yes, you still stand to lose money if (and that’s a very big IF) the Philippine government defaults on its obligations.

How Much Can I Earn with Retail Treasury Bonds?

Being safe doesn’t always translate to getting good returns and because the risk is so low, the potential return is also relatively lower. If you compare other more common investment instruments like stocks, mutual funds and UITFs to the last RTB issue rate of 4.625% then yes, the returns can be lackluster.

But comparing RTBs to conventional investing instruments would be like comparing a high speed race car to a bulky—but safer—Hummer SUV. If you compare RTBs to a savings or time deposit account, then you’ll be getting more from your money without taking on any additional risk.

You should also take into account loss of capital, which, for investors, means loss of sleep and appetite. When it comes to standard investment instruments, loss of capital is normal and is something experienced investors expect and prepare for. On the other hand, the Philippine government would very rarely default on its loans, which makes the possibility of capital loss with RTBs slim to none.

Why should I invest in Retail Treasury Bonds?

Affordability. Investments in RTBs are available for as low as P5,000 in the primary market. Once listed, it can be purchased for an amount set by the broker-institution you will purchase the RTBs from.

Low-risk. With RTBs, you can watch your money grow with almost no worry of losing. A yield is pretty much guaranteed as long as you retain the bond until maturity.

Liquidity. You can easily buy and sell RTBs in the secondary market through selling agents like banks. Subject to prevailing market prices.

Frequent cash flows. Interest payments are paid quarterly based on the principal market rate, providing you with a steady stream of income for the duration of the bond.

Who Can Purchase Retail Treasury Bonds?

Although typically offered to individual investors, institutions like cooperatives and corporations can also purchase RTBs.

In terms of qualification, age isn’t necessarily a big deal with RTBs as long as you can grasp the basics of the investment offer. Yes, even minors can invest in it. In those cases, the investment will be placed under an “In Trust For” (ITF) account, provided that the trustor-trustee relationship is proven.

Where Can I Purchase Retail Treasury Bonds?

An “Offer Period” is scheduled by the Philippine Bureau of Treasury (BTr) during which newly-issued RTBs are sold to the public through selling agents like banks.

RTBs are limited, so the BTr can shorten the Offer Period depending on the availability of the securities. After the initial issuance, RTBs are still available for sale in the secondary market, which is already subject to prevailing market rate.

The most important thing to remember is that a Philippine Peso account with a bank is required when buying RTBs. You can open a new one or assign an existing account where the principal payment and interests will be credited.

Once the Offer Period ends, any interested investor will only be able to buy RTBs in the secondary market.

Can I Sell My RTBs Before the Date of Maturity?

Yes. Because RTBs are marketable securities, you can endorse it to another retail investor or sell it back to the selling agent.

What’s With the Name?

“Retail” simply means that they cater to the retail market or the market of individual and small investors. “Treasury” comes from the Philippine Bureau of Treasury, which is the primary unit in charge of issuing and administering government securities. Finally, RTBs are “bonds” because they pay a fixed amount of interest every year with a pre-set maturity date.

How Do I Invest in Retail Treasury Bonds?

1. Inquire at your bank of choice.

First off, take note that not all banks offer RTBs, so it’s important to check with your bank if this type of investment is being offered. If so, having an existing Philippine Peso Account with your bank makes things easier since this type of account is required in buying RTBs. Otherwise, you’ll have to open a new account.

2. Fill out the required forms.

Complete a series of forms by the RTB selling agent. The requirements include a purchase application, client information sheet, and photo IDs.

3. Pay the principal cost.

Your principal payment will be deducted from your designated or newly opened Philippine Peso Account with the bank. Every quarter, the interest will be credited to your bank account until your investment matures.

When the RTB reaches full maturity—from two to ten years—the full principal and the last coupon payment will be credited to your bank account.

Other Factors to Consider

• RTB proceeds are used by the National Government to refinance its current debts or fund the government’s economic programs such as social services and infrastructure development.
• Depending on the National Government’s “needs,” RTBs sometimes come with higher interest rates.
• RTB interests are subjected to 20% tax deductions.
• RTB offerings are quick to sell. If you miss the public offering, you can visit the Bureau of Treasury’s website or inquire at your bank for the next scheduled offering.

The Takeaway

Consider RTBs as part of your low-risk investment portfolio. They are safe, affordable and just generally easy to go into without any risk of losing. Be sure to ask your bank about RTBs if you’re not sure if they offer them. That’s not to say that you should only look at RTBS; investing, after all, is all about diversity. If you’re in the market for more substantial returns, you should consider going into higher-yielding instruments such as Retail Treasury Bonds or other similar fixed income securities.

Source: Security Bank