Most TSP members are not aware, the government has provided a ‘silent’ subsidy in your G Fund investments. Effectively, the G Fund has been investing in the long-term U.S. securities, but paying on the long-term securities. Thereby, offering a higher return to the TSP member, than TSP earns. This is a good deal for those who have taken advantage of the G Fund, your only sanctuary in financial storms, however, we may be facing an inversion of the returns. Currently, with the cost of money from the Fed’s, the Short Term is currently earning more than long term. So, what is TSP to do; go with traditional pay based on the lower long term or pay based on the actual short-term returns?
| G Fund: Short-term U.S. Treasury securities | 100.0% | |
By law, the G Fund must be invested in nonmarketable U.S. Treasury securities specially issued to the TSP, however, The G Fund interest rate calculation is based on the calculated U.S. Treasury as the weighted average yield of approximately 183 U.S. Treasury securities on the last day of the previous month, with an average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. As a result, participants who invest in the G Fund are rewarded with a long-term rate on what is essentially short-term security.
Generally, long-term interest rates are higher than short-term rates.
The government is paying you a higher interest rate than it should. That is the G Fund free lunch. Sometimes, these things get turned upside down, called INVERTED YIELD or INVERSION. The inverted yield curve means what was once a higher return is now the lower return.
“G Fund investors benefit from receiving a medium-term Treasury Bond rate of return on what is essentially a short-term security,”
