TSP G Fund: YTD yield 0.79%

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stan1
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TSP G Fund: YTD yield 0.79%

Post by stan1 »

Low interest rate climate has finally caught up with the G Fund.
Guestimating G Fund yield will be 1.5%-1.6% for the 2012 calendar year -- well below 2011 yield of 2.45%.

Has anyone else shifted your some of your bond holdings from the G Fund to the F Fund (equivalent to Vanguard Total Bond Index)?
I shifted to 50/50 about a year ago. Have others gone 100% F Fund, or are some of you still using 100% G Fund?

Code: Select all

Year  G-Fund      F-Fund
2002	 5.00%	 10.27%
2003	 4.11%	 4.11%	
2004	 4.30%	 4.30%	 
2005	 4.49%	 2.40%
2006	 4.93%	 4.40%
2007	 4.87%	 7.09%
2008	 3.75%	 5.45%
2009	 2.97%	 5.99%
2010	 2.81%	 6.71%
2011	 2.45%	 7.89%
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Re: TSP G Fund: YTD yield 0.79%

Post by gkaplan »

I'm still using 100% G Fund.
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Re: TSP G Fund: YTD yield 0.79%

Post by AnimalCrackers »

gkaplan wrote:I'm still using 100% G Fund.
Same. No plans to change.
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SpecialK22
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Re: TSP G Fund: YTD yield 0.79%

Post by SpecialK22 »

Same here. I'm sticking with the G Fund as well as TIPS, I Bonds, EE Bonds and a small amount of cash for my fixed income holdings.
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Re: TSP G Fund: YTD yield 0.79%

Post by Easy Rhino »

For the recent argument against piling into "F", see:
http://www.bogleheads.org/forum/viewtop ... st=1433417

... when rates eventually start rising. Or if they start rising. Total bond market will be hurt, and G will do really well. G fund is basically magic, and only available in the TSP. If you have bond funds elsewhere, then F doesn't really do anything special for you.

... but man, bonds really have been killing it the last few years, haven't they?
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Re: TSP G Fund: YTD yield 0.79%

Post by White Coat Investor »

Why are you guesstimating? This stuff isn't a secret. Current yield is 1.375%. It's the same as the TSP loan interest rate and is posted monthly here:

https://www.tsp.gov/whatsnew/rates/curr ... ates.shtml
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stan1
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Re: TSP G Fund: YTD yield 0.79%

Post by stan1 »

Well, not surprisingly it looks like we have some G Fund diehards. I'm generally one too, but over the past 3 years I've also stopped using money market funds and FDIC insured CDs for what used to be my cash reserves. Now this money is in I-Bonds and CA Muni funds.

Since I went 50/50 a year ago, I think what I'll do at this point is develop a model to give me an indicator based on F Fund share price that tells me when to move back to 100% G Fund without sacrificing most of the gains over the past year. Essentially calculate a "stop loss" price for the F Fund holdings at which point I'd move back to 100% G Fund.
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Re: TSP G Fund: YTD yield 0.79%

Post by baw703916 »

I recently sold some long Treasuries and long TIPS in my IRA and moved money into the G Fund. The long TIPS/Treasuries have done entirely too well...

At least the real interest rate isn't too negative, and there's no duration or credit risk. That's about as good as you can hope for right now.

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Re: TSP G Fund: YTD yield 0.79%

Post by baw703916 »

[duplicate post]
Last edited by baw703916 on Fri Jul 06, 2012 10:47 pm, edited 1 time in total.
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Re: TSP G Fund: YTD yield 0.79%

Post by retiredjg »

stan1 wrote:Have others gone 100% F Fund, or are some of you still using 100% G Fund?.
I've been holding both ever since I set up my portfolio (with BH help a few years ago). I see no reason to go all one way or the other.
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Re: TSP G Fund: YTD yield 0.79%

Post by Default User BR »

stan1 wrote:Low interest rate climate has finally caught up with the G Fund.
"Finally"? The rate has been under 2% since late last year. It's one of the side-effects of being tied to longer Treasury rates. With those as low as they are, the G rate suffers as well. You also get much quicker changes, as the rate is recalculated monthly.

G under-performed inflation in 2011, and I suspect it will again for this year, but that's a temporary thing. It will likely in aggregate be in line with inflation.

The past couple of years have been unusual. Most of the time, G's rate is similar to middle of the pack stable-value funds. Starting early in 2011, there has been a divergence. The G rate is 1.375% for July. At MyMegaCorp the third quarter StV rate was set at 2.74% (a slight increase). That's the biggest difference I have seen between the two since I started comparing them a few years back. Historically the performance of the two has been nearly identical over the years.

Every year I get tempted to move off my 50/50 aggregate bonds/StV to raise the latter and "lock in" profits of the former. So far it would have been a mistake. At some point it won't.

If I only knew when . . .


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Re: TSP G Fund: YTD yield 0.79%

Post by Ketawa »

I'll be sticking with 100% G Fund, probably forever. It really is the only free lunch in investing. You get the yield and credit quality of Intermediate Treasuries with none of the interest rate risk. Of course, F Fund has looked good because of declining rates. But when (if?) rates rise, it'll take a small hit, while the G Fund will just start going up faster.

FWIW, here are the G Fund rates so far this year.

Jan-12 1.500%
Feb-12 1.500%
Mar-12 1.625%
Apr-12 1.875%
May-12 1.625%
Jun-12 1.375%
Jul-12 1.375%

Going forward, the F Fund (which is the same as Vanguard Total Bond Market) has an SEC yield of 1.96%. I don't see how this is a much better deal. I'll be sticking with 100% G Fund.
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Re: TSP G Fund: YTD yield 0.79%

Post by NoRoboGuy »

Most of my fixed income resides in the TSP, and I have 70% G, 30% F. I am at the "maximum percentage" in G my IPS allows due to the low rate environment.

From my IPS:

"Due to the special benefits of the G Fund, its sub-allocation may be increased to as much as 70% of the total. The long term return of the F fund exceeds that of the G Fund, but it has higher volatility and may have negative returns. A mix of the two will likely produce consistently positive returns with reduced volatility within the investment grade bond space. Some allocation to F Fund is needed at all times because its performance can be negatively correlated to stocks during some periods and its long term return is higher than G; also, the F Fund adds diversification with exposure to the mortgage-backed, corporate, and foreign government (issued in the U.S.) sectors of the U.S. bond market. Currently, the ratio is 70% for the G Fund due to the historically low yields found in the bond market, which suggests enormous bond price risk if rates rise, and which is precisely the risk the G Fund will protect against."
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Re: TSP G Fund: YTD yield 0.79%

Post by tadamsmar »

I use the L funds for (approximate) guidance as to how to allocate my non equities between G and F or F-equivalent funds.

I have made no changes in response to interest rates,.
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Re: TSP G Fund: YTD yield 0.79%

Post by antiqueman »

At the present I have 100% of my TSP in the G Fund.

G fund makes up about 50 percent of fixed income and 30 percent of total investments.

I note that the F fund is yielding almost ( not quite) 1% more than G Fund.


I have considered moving a substantial amount of G fund to F fund but am worried about rates rising. At the present yields of the respective funds 1% more on F fund equals 1000.00 more per year.


As I understand it, if rates rise then the loss to prinicple would be the percent the rate rise times the duration. I think F funds duration is about 4 years. So 1% rise in rates would be 4 % decline .


Having said all of this , what is the consensus if one should stay all in G fund to preserve capital. I am four years from retirement.


Thanks
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Re: TSP G Fund: YTD yield 0.79%

Post by White Coat Investor »

antiqueman wrote:
Having said all of this , what is the consensus if one should stay all in G fund to preserve capital. I am four years from retirement.
Is following the crowd really your plan?
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Re: TSP G Fund: YTD yield 0.79%

Post by Spades »

I've been 100% F fund the entire time. In my asset allocation, I have plenty of treasury bonds in other accounts. Also, the F Fund has about 37% treasury bonds since it follows Barclays Capital U.S. Aggregate Bond Index.

I wouldn't change your asset allocation just because yields are going down. Yields will change, and the things/people manipulating yields want you to buy more risk. Do you want to buy more risk?

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Re: TSP G Fund: YTD yield 0.79%

Post by Dr_McGarvey »

The latest gathering of my summary tables and charts may be seen at:

[OT link removed by admin LadyGeek]

My rough impressions of the several intervals and results here go something like the following:

(1) for equities (C-, S- and I-Funds) it was a good month (thanks largely to yesterday's improvements), and a miserable quarter and only so-so six-month returns. But looking further back over the 9- and 12-month intervals, changes looked a lot more volatile -- particularly for international equities, which lost ground (down over 13%). We'll just have to see if "the European problem" has begun to finally correct itself.

(2) on the bond side, we putter along weakly in the G-Fund with a less-than-scintillating one-year return of 1.81% improvement. And while weak recently, the F-Fund had a solid 7.53% return for the year.

(3) at last, some of the L-Funds have begun to display some "relative worth" -- especially the longer-term L 2050 Fund with its 2.97% one-year improvement, likely thanks to the relative weight of equities here.

I have personally maintained a 45% equity exposure since early February, and feel comfortable enough with such a "middle-of-the-road" position.
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TSP: Some Observed and Theoretical Returns

Post by Dr_McGarvey »

The latest gathering of my summary tables and charts may be seen at:

[OT link removed by admin LadyGeek]

(I realize this is the same URL I used in my previous messages -- as before, I've replaced the slides there with the most current data.)

My rough impressions of the several intervals and results here go something like the following:

(1) for equities (C-, S- and I-Funds) it was, bluntly, a good month, and a heck of a good quarter, sizzling six-, 9-, and 12-month returns.

(2) on the bond side, we continue to putter along weakly in the G-Fund with a less-than-scintillating one-year return of 1.56% improvement. And while weak recently, the F-Fund had a respectable 5.24% return for the year.

(3) at last, some of the L-Funds have begun to display some "relative worth" -- especially the longer-term L 2040 Fund with its 21.21% one-year improvement, likely thanks to the relative weight of equities here.

Looking forward, the broader financial picture looks, at best, "unsettled". I have, as a consequence, elected to switch to a 30% equity exposure in August, and feel a little more comfortable with such a "conservative" position.
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Re: TSP G Fund: YTD yield 0.79%

Post by hidesert »

I just retired at age 64 and roughly half my bonds are in the G fund. It is 100% of my TSP account. It is my ultimate defensive position. The other half of my bonds are the Fidelity Spartan Bond Index fund. As I take distributions and rebalancing I'm not touching the G fund until I have to in six years. I figure since bond rates have not risen I haven't yet reaped the advantage of the G fund.
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Re: TSP G Fund: YTD yield 0.79%

Post by Spades »

Do you have any charts showing the returns for the G fund during and after bond yields rise significantly? The reason why I'm curious is because it might lag behind a total bond index if the rates don't keep pace with the market.
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Re: TSP G Fund: YTD yield 0.79%

Post by Ketawa »

Spades wrote:Do you have any charts showing the returns for the G fund during and after bond yields rise significantly? The reason why I'm curious is because it might lag behind a total bond index if the rates don't keep pace with the market.
A more appropriate comparison would be a Treasury fund of approximately 7-8 years duration since it would have equivalent credit quality and duration. And in the case where rates rise, the G Fund would be guaranteed to win since NAV will not decline. It just starts going up faster.

For example, if rates rise one percent the Treasury fund would lose around 7% in principal and make about 2% in yield, for a loss of 5%. The G Fund would make about 2% in yield only.
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Re: TSP G Fund: YTD yield 0.79%

Post by 3504PIR »

I use the G fund as a % of my FI holdings, but I am wondering about the concerns right now about rising rates? It makes no sense to me. There is no secret that the fed won't be raising rates until 2015. While I wouldn't speculate on when in 15 or try to market time in a few years this is as close to an open book test as you will get in FI. I would not look for total returns from long bonds, but I would be pushing out my duration for sure at this point capturing yield while I can.
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Re: TSP G Fund: YTD yield 0.79%

Post by grabiner »

3504PIR wrote:I use the G fund as a % of my FI holdings, but I am wondering about the concerns right now about rising rates? It makes no sense to me. There is no secret that the fed won't be raising rates until 2015. While I wouldn't speculate on when in 15 or try to market time in a few years this is as close to an open book test as you will get in FI. I would not look for total returns from long bonds, but I would be pushing out my duration for sure at this point capturing yield while I can.
The Fed doesn't control rates; it takes actions to influence rates (such as buying and selling bonds, and setting the discount rate which is under its control), but bond prices are set by all the bond traders. And those traders have a good understanding of risk; the rate on the 30-year Treasury bond is higher than on the 10-year bond because traders won't buy long-term bonds unless they are compensated for the risk,

Normally, it doesn't make much difference what bond duration you use; a portfolio of stocks with short-term bonds, or with slightly more in intermediate-term bonds, or with even more in long-term bonds, has about the same return and the same risk. What makes the G fund attractive is that it has an intermediate-term yield with no risk. You could get a larger current yield by holding only long-term bonds to diversify your portfolio, but you would need a much larger bond allocation to get the same risk level in the overall portfolio, and that would probably reduce your total return.
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Re: TSP G Fund: YTD yield 0.79%

Post by Dr_McGarvey »

I'd have to look closer at my data to find the "increased bond yield/G-Fund" connections asked about. If someone could suggest appropriate intervals, that would simplify matters for me.

On another note (a point not often observed), the data suggest that the interval of time for the G-Fund NAV to increase by $0.01 (an admittedly arbitrary amount) has increased substantially over the last three years from a very stable 7 days to two weeks or more. This is consistent, of course, with the diminishing yields associated with bonds.
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Re: TSP G Fund: YTD yield 0.79%

Post by baw703916 »

Here is a graph of the monthly returns of the G Fund compared to 3-month T-bills (top of second page on the PDF below):

https://www.tsp.gov/PDF/formspubs/GFund.pdf

It only goes back to the G-fund inception in 1987.

My own opinion, if you will forgive the market timing, is that now is a really good time to own the G-Fund. Maybe even an especially good time. We know that interest rates will go up at some point, but of course we don't know when. When that happens, the complete absence of duration risk will be very desirable. Until it does, the G fund owner is currently receiving one of the larger premiums relative to T-bills that the G fund has had.
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Re: TSP G Fund: YTD yield 0.79%

Post by Default User BR »

baw703916 wrote:My own opinion, if you will forgive the market timing, is that now is a really good time to own the G-Fund.
I think it's a terrible time, if you are prone to market timing. Its current rate is abysmal. The likelihood of a sudden rise in long-term Treasury rates, the factor that would boost its return and depress bond holdings, is relatively small over the near term. That doesn't mean that an allocation to it as a safety play isn't warranted, but I certainly don't see any reason to increase holdings in G. People are doing a lot better in corporate stable-value funds, with very good levels of protection.


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Re: TSP G Fund: YTD yield 0.79%

Post by Investor2 »

I've been wondering about this issue as well, and posted this as one of the question I'd like to see asked at the upcoming Bogleheads conference.
Re: YOUR QUESTIONS FOR THE EXPERTS AT BOGLEHEADS 11
by Investor2 » Sun Sep 16, 2012 1:00 am

Federal and military employees have access to the Thrift Savings Plan (TSP) G Fund, which has some unique characteristics. Given the current environment, how should retirees or near retirees use the G Fund when constructing their bond allocation? Should they put 100% of their bond allocation in the G Fund, or should they also include some other types of bond funds (such as corporates, TIPS, I bonds, or Total Bond Market) and in what percentages?

My fixed income is currently 100% G Fund and I'm also planning to start buying the maximum allowable in I bonds each year. (I just started moving into bonds recently as I'm getting close to retirement - current portfolio is about 13% bonds/cash.)
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Re: TSP G Fund: YTD yield 0.79%

Post by baw703916 »

Default User BR wrote:
baw703916 wrote:My own opinion, if you will forgive the market timing, is that now is a really good time to own the G-Fund.
I think it's a terrible time, if you are prone to market timing. Its current rate is abysmal. The likelihood of a sudden rise in long-term Treasury rates, the factor that would boost its return and depress bond holdings, is relatively small over the near term. That doesn't mean that an allocation to it as a safety play isn't warranted, but I certainly don't see any reason to increase holdings in G. People are doing a lot better in corporate stable-value funds, with very good levels of protection.


Brian
Hi Brian,

As you know, the only choices in a TSP account are the G Fund and the F Fund (same index as TBM). Of those two choices, I would argue that at present G is better. It may be true that corporate stable value funds are giving higher yields, although I do wonder how they have managed to return something greater than the risk-free rate without there being some downside. I suspect that relatively few people have both the G Fund and a corporate stable-value fund available to hold their entire fixed income allocation. You would have had to have worked for both the Federal government and a large private sector employer for a considerable length of time.

Brad
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Re: TSP G Fund: YTD yield 0.79%

Post by baw703916 »

EmergDoc wrote:Why are you guesstimating? This stuff isn't a secret. Current yield is 1.375%. It's the same as the TSP loan interest rate and is posted monthly here:

https://www.tsp.gov/whatsnew/rates/curr ... ates.shtml
The current rate (Sept 26, 2012) is 1.25% A little lower than July.

Where did the 0.79% number come from, anyway?
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Re: TSP G Fund: YTD yield 0.79%

Post by Investor2 »

stan1 wrote:
I went 50/50 a year ago, I think what I'll do at this point is develop a model to give me an indicator based on F Fund share price that tells me when to move back to 100% G Fund without sacrificing most of the gains over the past year. Essentially calculate a "stop loss" price for the F Fund holdings at which point I'd move back to 100% G Fund.
Would this really work in practice and exactly how would one do this? I know we normally can't "time the markets," but perhaps this is an exception?

Also, if this is a reliable strategy, why wouldn't you do 100% in F Fund for now (to get the higher return) and then move back to G when the time is right, rather than hold 50/50?
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Re: TSP G Fund: YTD yield 0.79%

Post by Default User BR »

baw703916 wrote:The current rate (Sept 26, 2012) is 1.25% A little lower than July.
Where did the 0.79% number come from, anyway?
That's the year to date return. Note that the original post was in early July, and so would reflect about 1/2 of the year.


Brian
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Re: TSP G Fund: YTD yield 0.79%

Post by Default User BR »

baw703916 wrote:As you know, the only choices in a TSP account are the G Fund and the F Fund (same index as TBM). Of those two choices, I would argue that at present G is better.
I still don't buy it. Besides being market timing, the extremely low rate just doesn't cry out for overweighting. In general, I think a mix of principal-protected and regular bond funds makes sense, as it give one a differential response to changes in interest rates.
It may be true that corporate stable value funds are giving higher yields, although I do wonder how they have managed to return something greater than the risk-free rate without there being some downside.
These funds aren't locked into longer-term Treasuries, which have been badly beaten down. At MyMegaCorp, Treasuries only make up about 25% of the fund, with other products like high-quality corporates and MBSs. The current spread between this and G is the highest I've seen since I started paying attention in 2007. The StV fund is at 2.75% for this quarter (although due to reset in a few days).

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Re: TSP G Fund: YTD yield 0.79%

Post by gkaplan »

My personal year-to-date return is 1.12%. Not awesome but more than 0.79%.
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Re: TSP G Fund: YTD yield 0.79%

Post by Default User BR »

gkaplan wrote:My personal year-to-date return is 1.12%. Not awesome but more than 0.79%.
Again, look at the date today, and the date of the original post.


Brian
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Re: TSP G Fund: YTD yield 0.79%

Post by tadamsmar »

I allocate some to G and some to F-like bond funds, in my overall allocation. That leads to my TSP being 100% G.

I have not changed my overall allocation as a result of the low yields of the G fund.

My F/G allocation philosophy is similar to that of the L funds, but I don't use them and most of our retirement allocation simply cannot be in my wife's TSP.

I think some allocation to F has a diversification advantage, increasing risk-adjusted return of my overall allocation.

I am not interested trying to time bond allocation changes in an attempt to do better. I don't think it would increase my risk-adjusted return.

The goal of investing is not about the return of your lowest performing asset, the goal is to optimize your risk-adjusted return.
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Re: TSP G Fund: YTD yield 0.79%

Post by rj49 »

For those who want to take slightly more risk in the TSP without all the timing issues, you might consider the L Income fund. It has 20% stocks, 74% G, and 6% F, so over time you're more likely to get higher return, but the safety of the G fund and the low stock allocation would limit losses (it lost 5% in 2008). I know it's semi-heretical here to put stocks in your 401k plan, but I believe Rick Ferri said that replicating your overall asset allocation both in taxable and retirement funds makes it easier to manage psychologically. I know that's true for me, since I tend to fiddle with my taxable stock accounts more often and react to emotions, whereas I rarely check my TSP allocation and balances. The other advantage of the TSP income fund would be a possible rebalancing bonus, done automatically. Once you reach distribution phase, then you could consider switching back to a pure G fund, when the yield would presumably be much higher and you'd presumably have a higher overall balance due to the stock allocation in the Income fund.
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Re: TSP G Fund: YTD yield 0.79%

Post by Groundhog »

baw703916 wrote:
The current rate (Sept 26, 2012) is 1.25% A little lower than July.
For October 2012 the rate is 1.375%. Things are looking up!
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Re: TSP G Fund: YTD yield 0.79%

Post by 3504PIR »

grabiner wrote:
3504PIR wrote:I use the G fund as a % of my FI holdings, but I am wondering about the concerns right now about rising rates? It makes no sense to me. There is no secret that the fed won't be raising rates until 2015. While I wouldn't speculate on when in 15 or try to market time in a few years this is as close to an open book test as you will get in FI. I would not look for total returns from long bonds, but I would be pushing out my duration for sure at this point capturing yield while I can.
The Fed doesn't control rates; it takes actions to influence rates (such as buying and selling bonds, and setting the discount rate which is under its control), but bond prices are set by all the bond traders. And those traders have a good understanding of risk; the rate on the 30-year Treasury bond is higher than on the 10-year bond because traders won't buy long-term bonds unless they are compensated for the risk,

Normally, it doesn't make much difference what bond duration you use; a portfolio of stocks with short-term bonds, or with slightly more in intermediate-term bonds, or with even more in long-term bonds, has about the same return and the same risk. What makes the G fund attractive is that it has an intermediate-term yield with no risk. You could get a larger current yield by holding only long-term bonds to diversify your portfolio, but you would need a much larger bond allocation to get the same risk level in the overall portfolio, and that would probably reduce your total return.
absolutely correct - but the discount rate which as you point out, they set has both a direct and indirect effect on the bond market. One can certainly adjust duration as the situation changes. Granted, if the fed is adjusting the rate they do control on a monthly basis, as has happened in the past, it would be difficult to do so and probably not very smart for a casual investor.
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