He Has $100,000 in His Federal Retirement Bond Fund as Treasury Yields Hit 5%. Another 1-Point Rise Could Cost Him $6,000. A Different Fund Protects His Principal

Consider a hypothetical 58-year-old federal employee with $100,000 of his Thrift Savings Plan (TSP) in the F Fund, the TSP’s bond index option. Rising yields have him rattled. On November 10, the 10-year Treasury yield neared 5%, while the 20-year reached about 5.4%.

The debt headlines make it worse. Fortune reported that the Congressional Budget Office projects $20.1 trillion in interest payments on the national debt between 2026 and 2036. Heavy federal borrowing can push yields higher. His own return, though, depends on which TSP fund holds his money, and two of those funds respond to rising rates in opposite ways.

One More Point of Yield Takes About $6,000 From the F Fund

The F Fund tracks the Bloomberg U.S. Aggregate Bond Index. The iShares Core U.S. Aggregate Bond ETF (NYSEARCA:AGG) follows the same benchmark and lists an effective duration of nearly six years. Duration gives you napkin math for rate risk. For every year of duration, a one-percentage-point rise in bond yields across the market generally cuts about 1% from a fund’s price, although the actual result can differ.

On his balance, a one-percentage-point rise in bond yields across the market could produce an immediate price decline of about $5,730. Interest income would help offset the loss over time, but it wouldn’t prevent the initial hit to his account.

Yields are already moving. The 2-year rose from 4.6% to 4.7% in a single session this week as U.S. and eurozone bond yields climbed ahead of new inflation data and guidance on rates.

How the G Fund Keeps Every Dollar of Principal

The G Fund holds special Treasury securities issued exclusively to the Thrift Savings Plan. The U.S. government guarantees both principal and interest, so his account balance won’t fall when interest rates rise.

Its interest formula links his return to long-term rates. The rate is set monthly from the weighted average yield of Treasury securities with four or more years to maturity. That gives him a long-term bond yield with the price risk of a savings deposit. With the 5-year at 4.81% and the 30-year at 5.35%, the formula shows today’s high rates.

Higher Treasury yields can eventually lift the G Fund’s monthly interest rate, but a one-point jump in the 10-year Treasury doesn’t automatically produce the same increase.

Inflation and Lost Growth Are Hidden Costs of Safety

Safety still costs something. The 10-year inflation-protected Treasury yield is about 2.8%, compared with nearly 5% on the regular 10-year note. That difference suggests markets expect inflation around 2.2% annually over the next decade. The G Fund protects his principal, but it doesn’t guarantee how much that money will buy.

Prices are still climbing. The consumer price index rose 0.4% in October, according to the Bureau of Labor Statistics. Even without a market loss, inflation can steadily erode what his retirement savings will buy.

The growth he gives up is a bigger cost. Consider $100,000 growing at 5% for 15 years, which becomes about $208,000.

At an assumed 8% stock return, the same money reaches roughly $317,000. That $109,000 difference is what keeping everything protected could cost him by his early 70s.

Why Five Years of Withdrawals Fit the G Fund While the Rest Can Grow

The G Fund may be a good place for money he expects to spend soon. Unlike the F Fund, it won’t lose principal when yields rise, reducing the risk that he’ll need to sell investments at a loss to fund his retirement withdrawals. The first few years of withdrawals do outsized damage to a plan if markets turn, which is why we built a free guide around defending them: The First Five Years.

1. Count the TSP withdrawals you’ll need in your first five years of retirement. If he plans to take $20,000 annually until claiming Social Security, that’s $100,000 in planned withdrawals. He could consider holding some or all of that amount in the G Fund, depending on his other retirement income, cash reserves and investment goals.
2. The F Fund can still play a role in longer-term retirement investments. Higher yields may improve future returns, while falling rates can lift bond prices. But even over 10 years, gains aren’t guaranteed.
3. One approach keeps longer-term savings in TSP stock funds and periodically refills the G Fund. Moving money between funds doesn’t trigger income tax, but withdrawals from a traditional TSP generally do, regardless of which fund holds the money. Medicare also looks at income from two years earlier when calculating higher premiums. For 2026, the first surcharge begins above $218,000 for joint filers or $109,000 for single filers, adding $81.20 a month per person for Part B.

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