TSP F Fund Performance | Why Bonds Are Underperforming

The Changing Role of the TSP F Fund

The Thrift Savings Plan (TSP) F Fund has long occupied a unique position for federal employees seeking a balance between safety and growth. Designed to mirror the Bloomberg-Barclays U.S. Aggregate Bond Index, this fund aims to provide returns exceeding those of the G Fund. Investors accepted a specific level of market volatility in exchange for that potential upside. Recent performance data, however, highlights a significant disconnect between those original expectations and the current reality of the bond market.

Investment experts point to the interest rate environment as the primary culprit for this shift. For decades, the trend of declining interest rates fueled bond prices, which bolstered the F Fund’s performance. This long-term trend began to reverse in 2021. The subsequent rise in interest rates turned the tide, creating a difficult environment for fixed-income assets. In 2022, the F Fund faced a sharp decline, shedding 13% of its value following a 1.5% drop the previous year. This performance stands in contrast to the G Fund, which remains a stable, government-backed option with zero fluctuation in value.

Investor Sentiment and Market Realities

Federal employees have reacted to this volatility by distancing themselves from the F Fund. Participation numbers reveal a clear trend of declining interest. In 2009, approximately 5% of TSP participants directed their investments toward the F and S funds combined. By May 2026, the F Fund held only 1.9% of total TSP assets, ranking it as the least popular option among federal participants. This aversion often stems from a preference for the perceived security of the G Fund, which acts more like a cash account than a traditional bond fund.

Arthur Stein, a partner at Allworth Financial, notes that the lack of popularity is not merely a recent reaction to poor returns but a long-standing trend among feds. Many investors prioritized the absolute safety of the G Fund over the modest growth potential of a bond index. Even when the F Fund performed well in past decades, it struggled to capture significant investor interest. Today, the choice remains stark: stick with the reliable but low-yield G Fund, or navigate the price fluctuations inherent in the F Fund’s underlying bond holdings.

Future Outlook for Bond Investors

Looking ahead, the macroeconomic climate presents further challenges. The national debt has surpassed the $40 trillion mark, a figure that continues to weigh on the broader economy. Rising federal borrowing requirements often put upward pressure on interest rates, which directly suppresses the value of existing bonds held in funds like the F Fund. Investors should not expect an imminent return to the interest rate environment that characterized the late 20th century.

Still, the F Fund retains a role in a well-structured portfolio. For those investing consistently on a weekly basis, the current lower prices may offer an entry point for long-term holders. The yield paid by the bonds has also increased, providing a silver lining for those willing to endure short-term volatility. The decision rests on an investor's personal risk tolerance and their ability to remain patient during periods where interest rates remain high or continue to climb. For most, the simplest path remains the L Fund, which automatically balances F and G fund exposure without requiring constant manual adjustment.