Philippines: Retail dollar bonds for OFWs and residents, how to invest
Money matters: How OFWs, residents can benefit from government dollar bonds
NOTE: This is for informational purposes only, and not an investment advice.
Manila: More Filipinos, including overseas workers (OFWs), are reaping the benefits of retail dollar bonds (RDB) issued in recent years by the Philippine government.
Here's what you need to know and how to benefit from it:
What are RDBs?
A government bond is a debt security issued by a government to support public spending and obligations, including budget shortfalls.
Retail dollar bonds (RDBs) in the Philippines are government-issued bonds denominated in US dollars.
Is my money safe with RDBs?
Government-issued bonds are the most secure kind of investment. Banks or investment firms or schemes may go belly-up, but the government (representing the people), never runs away.
And how much do I need to get started?
$200 (about Php11,318). This is a huge development. The significant reduction in the minimum investment threshold from $300 for the initial RDB issuance to a mere $200 or the peso equivalent for RDB2, lowers the entry point, thus making it more accessible, or "inclusive" to a broader range of investors, say officials.
This entry-point amount is likely to stay with subsequent RDB issuances. Note: keep constant watch of announcements from the Finance Department or the Bureau of Treasury or minimum investment.
When were RDBs introduced?
They were first introduced in 2021. The debut of the RDB raised approximately $1.6 billion for the Philippine government. This success has led to high expectations for subsequent issues.
Why are they being issued only now?
These bonds are part of Manila’s efforts to tap into the savings and investments of Filipinos, especially those living abroad as OFWs, and to fund various development projects and initiatives. It is part of what officials call “financial inclusion”, alongside the digitisation of financial transactions, via smartphone apps.
During the recent auction earlier this month (September 2023), the BTr offered $636 million worth of RDB2, while eligible government securities dealers submitted bids totaling $636.2 million.
Who can buy these RDBs?
Individual investors, including both Filipino citizens and non-resident Filipinos.
If I invest, what’s in it for me?
The obvious benefit is the return on your money, based on the “coupon rate”.
During the recent rate-setting auction, Bureau of the Treasury (BTr) set the coupon for the new 5.5-year dollar-denominated bonds at 5.75%. This is much higher than the US dollar time deposit offered by the government-owned Land Bank at 1.5% per annum with a 3-year tenor. BDO offers a 2.65% per annum yield on time-deposit accounts, with a minimum of $1,000 (for a period of 360 days).
How do retail investors benefit?
You gain an advantage by loaning your money directly to the government instead of depositing your earnings in a bank, which subsequently lends it to the government through such bonds offers — then pocketing the difference.
Government bonds help in funding deficits in the national budget and are used to raise capital for various projects such as infrastructure spending.
However, government bonds are also used by the central bank (BSP) to control the nation's money supply.
Do investors pay tax on RDB earnings?
The government covers the final withholding tax on interest, thus alleviating the tax burden on investors. This tax relief ensures that investors can fully enjoy the returns on their investments.
Please note: this benefit exclusively applies to investors transacting in US dollars. Those acquiring RDBs through authorised selling agents will still be subject to applicable fees.
How can I invest in RDBs?
It is accessible to retail investors via apps, or via designated banks.
The Philippines’ Bureau of the Treasury (BTr) is spearheading a digital revolution, eliminating the need for in-person visits to bank branches. This shift is set to empower investors and revolutionise the way Filipinos manage their finances.
In general, you can utilise any of the following options:
(1) The BTr's online selling platforms,
(2) The mobile app of Landbank of the Philippines, Union Bank of the Philippines, and Overseas Filipino Bank; and
(3) Authorised selling agents: BDO Capital and Investment Corp., Bank of the Philippine Islands, China Banking Corp., Development Bank of the Philippines, First Metro Investment Corp., The Hongkong and Shanghai Banking Corp., Metropolitan Bank and Trust Co., Philippine National Bank, Security Bank Corp., Land Bank of the Philippines, and Union Bank of the Philippines.
Until when is the offer period?
The RDB2 offer period kicked off on September 27 and closes on October 6, 2023, according to the Philippine Bureau of Treasury.
Finance Secretary, Dr Benjamin Diokno, has shed light on the launch of Retail Dollar Bond-2, marking the culmination of a series of initiatives set in motion in January 2023.
This journey began when the country’s economic team embarked on an international roadshow aimed at empowering overseas-based Filipinos with essential financial knowledge.
Diokno revealed that over 700 Filipinos actively participated in these enlightening financial literacy sessions, which were held across diverse countries, including Singapore, the United States, Germany, the United Kingdom, Canada, Qatar, and the United Arab Emirates.
Manila economic managers see RDBs as playing a critical role in advancing "financial inclusion”, and levelling the playing field for both institutional and retail investors.