Corporate bonds can offer attractive yields and a reliable stream of income, whether denominated in pesos, US dollars, or other currencies.
However, focusing solely on the coupon rate can cause investors to overlook important risks. Before investing, it pays to understand not only the income a bond offers but also the company behind it and how the investment fits within a broader financial plan.
When you invest in a corporate bond, you are essentially lending money to a company. As such, the issuer's ability to make interest payments and repay principal at maturity should be a key consideration.
Reviewing factors such as profitability, cash flow generation, debt levels, and business stability can provide a better understanding of a company’s financial health. Credit ratings can also serve as a useful guide when evaluating credit quality, but they are usually more common and transparent in international bond markets.
It can be tempting to focus on the highest-yielding bond available. However, higher yields often reflect higher risks. Instead of looking at yield alone, investors should compare a bond’s return to other similar corporate bonds and ask whether the additional income adequately compensates for the risks involved.
Take, for example, these three peso corporate bonds:
Indicative pricing as of August 11, 2026
All three are issued by top Philippine property companies and will mature in 2029. FLI’s yield is roughly 17 basis points (bps) higher than those of ALI and SMPH. On the one hand, this may be because the bond matures much later than the other two. On the other hand, investors may also be pricing in a little bit more risk than for ALI and SMPH.
A good investment is not necessarily the one with the highest yield, but the one that offers the most appropriate risk-return balance.
Interest rates play an important role in bond performance. In general, bond prices move inversely to interest rates, meaning prices may decline when rates rise. This effect is typically more pronounced for longer-dated bonds. Understanding your investment horizon and income needs can help determine whether a short-, medium-, or long-term bond is most appropriate for your portfolio.
Not all bonds are equally easy to trade. Some enjoy active secondary-market trading, while others may be harder to sell before maturity. Investors who may need access to their funds should consider a bond's liquidity, particularly during periods of market volatility when trading conditions can become more challenging.
For bonds denominated in a foreign currency, exchange-rate movements can affect overall returns. Even if a bond performs well, gains may be eroded if the foreign currency weakens relative to your home currency. Investors should therefore consider both the bond’s yield and the potential impact of currency fluctuations.
Corporate bonds can come with features that affect future returns. For example, callable bonds give issuers the option to redeem the bonds before maturity. If interest rates decline, issuers may refinance their debt at lower borrowing costs, requiring investors to reinvest their proceeds at lower prevailing rates. Understanding these provisions can help prevent surprises later on.
A corporate bond should not be evaluated in isolation. Rather, it should complement your overall investment strategy. Diversifying across issuers, sectors, maturities, and currencies can help reduce concentration risk and build a more resilient portfolio across different market environments.
Corporate bonds can play an important role in generating income and diversifying a portfolio, but successful investing involves more than chasing the highest coupon rate.
How would I assess the credit strength of the bond issuer?
What interest rate risk am I taking on?
How liquid is the bond?
Is the bond sensitive to currency fluctuations?
Are the bond features and terms acceptable and reasonable?
How does the bond fit into my portfolio?
The answers to these questions can help investors make more informed decisions and better position themselves to achieve their long-term financial goals.
For more information on corporate bonds, you may reach out to your Wealth Specialist or log in to Metrobank Wealth Manager.
DANA LOUISE GERONIMO is an Investment Counselor at Metrobank under the Institutional Investors Coverage Division. She built her expertise through her previous roles as an Investment Specialist and as a Financial Markets Sector Management Trainee within the bank. Dana holds a Master’s degree in Industrial Economics from the University of Asia and the Pacific. Outside of work, she enjoys exploring different fitness centers and reading.
