The government will soon offer overseas Filipino workers (OFWs) and their families an initial $100 million worth of retail Treasury bonds that may include a form of guarantee to protect their dollar earnings, said bankers privy to the issuance.

Top officials of the state-owned Land Bank of the Philippines, which acts as an adviser to the government’s OFW offering, along with British bank HSBC, said the 2.5-year, dollar-denominated T-bond offering with an annual yield of about 4 percent is currently being worked out.

The government hopes to issue the bonds in April.

OFWs and their beneficiaries may buy the retail Treasury bonds (RTBs) for a minimum investment of $500 once they have shown proof that they are working abroad or that they belong to an OFW-supported household.

To address widespread concerns about the US dollar’s downtrend against the peso, they said the offering would be structured in such a way that would give a foreign exchange cover to OFWs. This means that the OFWs may be given an exchange rate guarantee so their RTB investments will not be diluted if the peso further strengthens against the US dollar.

“Without a hedge, it’s easier, but that (forex guarantee) is what the OFWs are asking for,” Landbank president Gilda Pico said in a briefing Tuesday night.

“It’s something like a guarantee that, at the end of the term, you’re protected from exchange rate [risk],” Land Bank executive vice president Alfonso Cruz Jr. said. “For example, if [the guarantee is set at) 38 to the dollar, even if [the peso] goes down to 30, we’ll still give 38.”

Cruz said the financial mechanics on this hedging component are still being discussed. Also, the Bureau of Treasury is still reluctant to shoulder the cost of the foreign exchange cover.

But even if the Bureau of the Treasury decides not to assume the proposed hedging mechanism with finality, Cruz said, the underwriters may find a way to structure the RTBs to provide forex risk cover to investing OFWs.

Cruz said the 4.0 percent proposed yield would be a “good” rate for a dollar-denominated investment instrument, as this is comparable to the yield currently offered by Philippine banks’ foreign currency deposit units (FCDUs) to high-net-worth depositors with large volumes of FCDU deposits.

“And it’s not only the four percent [yield],” Land Bank treasurer Reevie Vergara added. “Together with the purchase of interest-bearing instrument, we are attempting to give them a hedge to the exchange rate [volatility] upon maturity.”

In a separate interview, Governor Amando Tetangco Jr. of the central bank, Bangko Sentral ng Pillipinas, said an OFW bond with a hedging mechanism may be feasible.

“I think it’s a doable structure, but it’s really the government that will decide on what kind of instrument they want to issue to our OFWs because, in general, it may be a better approach if the structure is simpler,” Tetangco told reporters Wednesday.

“But it depends on the risk appetite of overseas Filipinos. I think the instrument should be tailored to their level of sophistication,” he said, noting that it may be possible to offer different kinds of instruments to different OFW groups.

The RTB issuance targets the foreign money not being remitted by overseas Filipinos and will be a follow-up to the P5 billion high-yield peso-denominated deposit facility, called long-term negotiable certificates of deposit, which Land Bank will issue in March.

Citing an estimate from the Asian Development Bank, Cruz said about 60 percent of money earned by OFWs is being kept in their host countries.

On the tax treatment of the RTBs, Cruz said, it’s possible to exempt them because these are investments that will be earned abroad.

But in the worst case, he said, they would be taxed at 7.5 percent, comparable to the effective tax rate on FCDU earnings.