Corporate

Finance

B. Fixed Income Securities

Market
The largest component of the

Philippine capital market is the

fixed income securities market,
largely comprised of debt
instruments issued by the
government and private companies
and held by banks, insurance
companies, pre need companies
and pension funds.

2 kinds of instruments issued by the National Government

1. Treasury Bills- a

promissory note issued by the

government with a maturity
date of not more than one (1)
year.
2. Treasury Bonds- a long
term bond issued by the Phil.
Treasury.

ISSUES
1.Inefficiency of the primary auction
market.
We do have electronic bidding and
p[osting, yet the market is inefficient.
2. Lack of a Secondary Market.
The next fundamental problem is a nonexistent secondary market that arises from
the fact that primary buyers of treasury
bills and treasury bonds opt to hold this
instruments until they mature.

3. Heavy Taxation of a Secondary Market

Transactions.
Since the documentary stamp tax of 0.75% is
based on the face value of the instrument, it is a
significant additional cost to the cost of the
transaction. This makes holders unwilling to
unload their securities achieve liquidity and
realize capital gains.
4. Lack of Investor Interest.
Lack of market liquidity and lack of market
knowledge continue to discourage investors to
hold long-term instruments such as government
bonds and securities.