Stocks get all the attention, but bonds play an essential role in any investment portfolio. While stocks offer unlimited upside but higher risk, bonds provide steady, predictable returns with less volatility.
“There is an old saying that stock investors see the sky while bond investors see the ceiling,” Josefino Gomez, a Registered Financial Planner, told FinancialAdviser.ph “With stocks, your gains can be unlimited—or go to zero. Bonds, on the other hand, offer fixed interest and prioritize repayment.”
If you’re looking for consistent income and lower risk, here’s what you need to know about bond investing.
How Bonds Work
When you buy a bond, you’re lending money to a company or the government in exchange for regular interest payments. At the end of the bond’s term, you get back your initial investment.
“Bonds are a great way to earn passive income while keeping risk manageable,” says Gomez. “They pay periodic interest, usually higher than time deposits, making them ideal for conservative investors.”
In the Philippines, bonds fall into two main categories:
Government Bonds – Considered low-risk since the government is unlikely to default.
Corporate Bonds – Issued by companies, offering higher returns but with more risk.
How to Invest in Bonds
Bonds can be purchased through banks, brokers, or bond funds. The Bureau of the Treasury also offers Retail Treasury Bonds (RTBs), which require as little as ₱5,000 to invest.
“Buying bonds is easier than most people think,” says Gomez. “You can invest directly through the Treasury, buy in the secondary market, or participate in bond funds managed by institutions.”
If you don’t want to hold bonds until maturity, they can be traded in the secondary market. However, selling early may mean taking a loss or paying extra fees.
How Bonds Make You Money
Investors earn from bonds in two ways:
Collecting interest payments, which are typically paid quarterly or semi-annually.
Selling bonds at a higher price if interest rates fall or the issuer’s financial standing improves.
“If you hold a bond to maturity, you’ll get steady income,” Gomez explains. “But if market interest rates drop, bond prices rise, allowing investors to sell at a profit.”
Types of Bonds Investors Should Know
Callable Bonds – The issuer can redeem these early if market interest rates drop.
Puttable Bonds – Investors can demand early repayment before maturity.
Zero-Coupon Bonds – Sold at a discount and redeemed at full value upon maturity.
Convertible Bonds – Can be converted into company shares instead of cash.
Junk Bonds – High-risk bonds that offer higher interest rates to compensate for default risk.
Risks of Bond Investing
While bonds are safer than stocks, they’re not completely risk-free. The main risks include:
Inflation Risk – Rising inflation erodes the purchasing power of fixed-interest payments.
Credit Risk – The bond issuer could default, leaving investors with losses.
Liquidity Risk – Some bonds are harder to sell in the secondary market, affecting price flexibility.
“Just like any investment, bonds come with risks,” says Gomez. “Inflation can eat into returns, and if a company’s credit rating drops, its bonds can lose value. That’s why choosing high-quality bonds is important.”
The Bottom Line
Bonds offer stable, passive income and are a great way to diversify your portfolio. If you’re looking for less volatility, predictable earnings, and a hedge against stock market swings, bonds could be the investment you need.
“Bonds are perfect for investors who want steady income without the daily swings of stocks,” says Gomez. “They provide peace of mind, especially in uncertain markets.”
