The Philippine Domestic Bond Market Finance Essay

The Philippine domestic bond market consists of 2 types of bonds – short- and long-run bonds ; chiefly issued by the national authorities. The bulk of bonds in the Filipino bond market are the Treasury notes and bonds. Though the corporate bonds make up a little per centum of the overall bond market, they have been steadily turning their portion in the last few old ages.

Over the last 5 old ages, the Philippine fixed income market has put in attempts to convey construction and order into the bond market environment. However, more work is needed in the organisation of the topographic point market as the market drivers and stakeholders consider it an of import and necessary measure in making market structures that will convey hardiness into the system.

As the recognition evaluation of Philippines was upgraded late by both S & A ; P and Moody ‘s, it has lent a favourable investing environment.

In the secondary market, liquidness for both authorities and corporate bonds increased as the volume of trade at the fixed income exchange ( FIE ) climbed to P1,199.5 billion in the first three months of 2012, up by 84 percent y-o-y and by 13.9 percent q-o-q.

Beginning: Bureau of Treasury

Recent Highlights

The involvement rate is on a downward tendency and the rising prices is about stable now. However as the state ‘s economic system grows, it ‘s of import to hold the right pecuniary policies to be able to maintain rising prices in control. Hence the BSP late cut the involvement by 25 footing points to 3.75 per centum in a command to convey about a strong fiscal system combined with a balanced and sustainable growing in economic system.

F: AIMMRRFinanceLabFixed IncomeADBPolicy rates and Inflation trends.png

Beginning: asianbondsonline.adb.org

The first one-fourth of 2012 has shown a surprisingly high growing of 6.4 % after a low public presentation the full last twelvemonth. The high growing is chiefly driven by increased consumer disbursement that is underpinned by a healthy remittal influx and strong recognition growing.

Size of LCY Bond Market in % of GDP: F: AIMMRRFinanceLabFixed IncomeADBSize of LCY Bond market in % of GDP.png

Beginning: asianbondsonline.adb.org

Over the old ages, there is an increasing figure of corporate bonds that are being issued. The public sector continues to rule the market of entire bond issues with 92 % portion while the private sector made up for the remainder 8 % .

Harmonizing to the Bureau of Treasury, the entire bond issue ( public and private combined ) amounted to 350Bn Pesos in the first one-fourth of 2012. This marked an addition of 30 % as compared to the same one-fourth last twelvemonth ; while the addition was 57.2 % as compared to the old one-fourth ( Q4 2011 ) . The public sector issue was up by 31 % while the private was up by 17 % . This was chiefly due to the really liquid domestic fiscal markets which helped in sourcing financess.

Chemical bond Turnover Ratio

F: AIMMRRFinanceLabFixed IncomeADBBonds Turnover Ratio.png

Beginning: asianbondsonline.adb.org

Chemical bonds Portfolio

Corporate Chemical bonds:

Chemical bond Name

Coupon

Adulthood

YTM

LTP

Duration

RLC 07-14-NWT

8.50 %

7/14/2014

8.50 %

99.9783024

1.88

RCB 18 R13

7.00 %

2/22/2013

7.00 %

99.9965188

0.56

MBT 18 R13-NWT

7.75 %

10/3/2013

6.875 %

101.0914197

1.11

Government Chemical bonds:

Heart

Seriess

Coupon

Adulthood

YTM

LTP

Duration

RPGB

7-50

5.375

10/28/2017

4.801125

102.625

4.48

RPGB

R510

6

3/3/2016

4.70722

104.375

3.2

RPGB

7-49

7

3/31/2017

4.608435

110.356

3.92

RPGB

5-70

4.625

7/5/2017

4.595661

100.375

4.35

RPGB

R7-1

7

9/24/2016

4.541237

109.125

3.6

RPGB

R7-2

6.625

8/19/2017

4.564386

108.716

4.27

RPGB

1042

9.125

9/4/2016

4.49242

117.33

3.38

Methodology

Listed below are the considerations every bit good as the methodological analysis that went behind choice of the bonds for investing intent.

The most of import standard for choice was YTM.

Second, we looked at the adulthood day of the month of bonds to be before 2017, in line with the investing doctrine.

Third, we calculated the Duration of bonds. Duration refers to the per centum alteration in the monetary value of a bond caused by one per centum alteration in output. Hence it ‘s a step of resiliency of the monetary value of the bond to involvement rate fluctuations. We wanted to cipher DV01 ( per centum alteration in the monetary value of a bond caused by one footing point alteration in output ) which is a better index as the market has become much more volatile in the last few old ages.

Weightages were assigned to these 3 standards to get at a leaden norm mark for each bond that would assist in choosing the top bonds for our portfolio.

Chemical bonds with highest outputs and the lowest continuance made the cut for the portfolio.

For corporate bonds, we took into history the recognition evaluation every bit good.

As seen earlier, the Government to Corporate bond ratio is 92:8. At the same clip, the corporate bonds are besides steadily increasing in volume. After analyzing the bonds, we decided to divide our investing as 60 % in Government bonds and 40 % in corporate bond.

Recommendation

Based on the above standards, we decided to divide our investing as 60 % in Government Bonds and 40 % in corporate bonds. Below, is the portfolio of bonds we selected. Since the involvement rates are expected to be low, the bonds with low continuance should be traded on the secondary market and the bonds with high continuance should be ‘Held to Maturity ‘ . Besides, the liquidness will be more in instance of low continuance bonds.

Government Securities

Government securities are direct and unconditioned duties of the national authorities. They are issued by the Bureau of Treasury ( BTr ) .

Treasury Bills[ 1 ]:

Treasury Bills ( T-bills ) carry a adulthood of one twelvemonth or less and can be traded in the secondary market before adulthood. Treasury Bills do non bear involvement. They are issued and sold at a price reduction from face value and are redeemed at adulthood for the full face value of the instrument.A

Issuer

National authorities

Term

91, 182, 364 yearss

Tax characteristic

Interest income topic to 20 % concluding withholding revenue enhancement

Type of income

Tax paid income

Interest calculation

True price reduction expression

Manner of purchase

Auction or through secondary market

Fixed-Rate Treasury Notes[ 2 ]:

Fixed Rate Treasury Notes ( FXTNs ) are involvement bearing and transport a term of more than one twelvemonth and can be traded in the secondary market before maturity.A Fixed Rate Treasury Notes are considered one of the primmest investing instruments in the market. They are safe, liquid and offer attractive returns to investors.A Fixed Rate Treasury notes are issued and sold at a monetary value equal to be face value and are redeemed at adulthood for the full face value of the instrument plus interest/coupon of the last period.

Issuer

National authorities

Term

2, 5, 7, 10, 15, 25 old ages

Tax characteristic

Interest income topic to 20 % concluding withholding revenue enhancement

Type of income

Tax paid income

Rate

Fixed for the life of the FXTN ; based on lowest accepted output to adulthood on auction day of the month

Coupon payment period

Collectible semi-annually in arrears

Interest calculation

Simple interest/add-on

Manner of purchase

Auction or through secondary market

Retail Treasury Bonds / Multi-Currency Retail Treasury Bonds[ 3 ]:

Retail exchequer bonds are authorities securities that are issued to little single investors in smaller denominations with frequent, fixed-rate voucher payments.A These instruments carry a term of more than one twelvemonth and can be traded in the secondary market.A Retail exchequer bonds are issued to investment bankers alternatively of primary dealers.A In April 2010, the authorities began selling multicurrency retail exchequer bonds to enable Filipinos to put in foreign-currency denominated authorities securities at an low-cost minimal denomination of USD100 or EUR100.

Issuer

National authorities

Term

3 and 5 old ages

Tax characteristic

Interest income topic to 20 % concluding withholding revenue enhancement

Type of income

Tax paid income

Rate

Fixed for the life of the RTBs

Coupon payment period

Collectible quarterly in arrears

Interest calculation

Simple interest/add-on

Manner of purchase

Auction or through secondary market

Recommendation:

Government bonds make up bulk part of the entire bond issues ; at the same clip the corporate bond issues are on a steady increasing tendency. We will be puting 60 % of our fixed income portfolio in authorities securities. We will be puting in RTB as the minimal sum to put is 5000 pesos whereas in Treasury measures and Fixed-rate Treasury Notes it is 10 million.

Corporate Chemical bonds

Robert robinsons Land Corporation

Robert robinsons Land Corporation, together with its subordinates, engages in the acquisition, development, leasing, and sale of existent estate belongingss in the Philippines. It develops, rentals, and manages shopping promenades, assorted usage belongingss, offices and residential edifices, every bit good as engages in the land and residential lodging development activities consisting socialized lodging undertakings. As of September 30, 2011, it operated 29 shopping promenades, including 6 promenades in Metro Manila and 23 promenades in other urban countries in the Philippines.

ROBINSONS LAND CORPORATION ( RLC )

Year ended on

Grosss

Net Income

Interest Coverage Ratio

Roe

Sep-10

11,297.00

3,592.80

15.23

13.10 %

Sep-11

13,344.50

3,974.10

20.39

10.20 %

Chemical bond Name

Coupon

Adulthood

YTM

RLC 07-14-NWT

8.50 %

7/14/2014

8.50 %

Rizal Commercial Banking Corporation

Rizal Commercial Banking Corporation ( RCBC ) is a cosmopolitan bank in the Philippines that provides a broad scope of banking and fiscal merchandises and services. In footings of capital the bank rank 4th among the private Bankss in Philippines. The Bank and its subordinates are engaged in all facets of traditional banking, investing banking, retail funding ( recognition cards, car loans and mortgage/housing loans ) , renting, foreign exchange and stock brokering.

RIZAL COMMERCIAL BANKING CORPORATION ( RCB )

Year ended on

Grosss

Net Income

Roe

New people’s army

Car

Dec-10

16,424.00

4,248.00

14.08 %

4.37 %

17.77 %

Dec-11

18,678.00

5,007.00

13.96 %

3.57 %

18.52 %

Half twelvemonth ended on June 2012

9,807.00

3,008.00

15.43 %

3.57 %

17.11 %

Chemical bond Name

Coupon

Adulthood

YTM

RCB 18 R13

7.00 %

2/22/2013

7.00 %

Metropolitan Bank & A ; Trust Company

Metropolitan Bank & A ; Trust Company, together with its subordinates, provides a scope of banking and fiscal merchandises and services. Its Consumer Banking section offers single clients ‘ sedimentations, including nest eggs, checking, and clip sedimentations ; and provides consumer type loans and recognition cards. The Corporate Banking section engages in managing loans and other recognition installations ; and offers sedimentation and current histories to corporate and institutional clients. Company ‘s Investing Banking section arranges structured finance, every bit good as provides services associating to denationalizations, initial public offerings, and amalgamations and acquisitions. The Treasury section offers money market, trading, and exchequer services.

METROPOLITAN BANK & A ; TRUST COMPANY ( MBT )

Year ended on

Grosss

Net Income

Roe

NPL

Car

ROA

Dec-10

39,339.00

8,366.00

10.27 %

2.88 %

16.40 %

0.96 %

Dec-11

44,945.00

11,031.00

11.17 %

2.22 %

17.40 %

1.20 %

Half twelvemonth ended on June 2012

26,644.00

7,417.00

13.43 %

2.63 %

18.53 %

1.56 %

Praveen Sharma

prsharma.mba2012 @ myapps.aim.edu

Chemical bond Name

Coupon

Adulthood

YTM

MBT 18 R13-NWT

7.75 %

10/3/2013

6.875 %