TSP F Fund Explained: Bonds, Duration Risk, and the G Fund Trade-Off

The F Fund is TSP's only bond index fund — it tracks roughly 12,000 US investment-grade bonds at a cost of 0.035% per year. Unlike the G Fund, the F Fund can lose principal when interest rates rise. In 2022 it lost 13% while the G Fund returned +2.9%. But in a falling-rate environment it can outperform. Understanding exactly when the F Fund earns its place — and when the G Fund wins — is the most consequential fixed-income decision in your TSP.

What the F Fund is

The F Fund — Fixed Income Index Investment Fund — invests in US investment-grade bonds across every major sector of the domestic bond market. Its benchmark is the Bloomberg US Aggregate Bond Index (commonly called "the Agg"), the broadest measure of the US investment-grade bond market covering roughly 12,000 securities.¹

The Bloomberg US Agg is approximately:

• ~43% US Treasury and agency bonds — direct obligations of the federal government and government-sponsored enterprises
• ~27% mortgage-backed securities (MBS) — pools of residential mortgages guaranteed by Ginnie Mae, Fannie Mae, and Freddie Mac
• ~25% investment-grade corporate bonds — debt issued by US corporations rated BBB− or higher
• ~5% other — agency commercial mortgage-backed securities, asset-backed securities, and supranationals

The fund is managed by BlackRock Institutional Trust Company, N.A. — the same institution that manages the C and S Funds — holding bonds in proportions that match the Bloomberg Agg weights. All interest payments are reinvested so the F Fund share price reflects total return.

What the F Fund costs

The F Fund's total expense ratio for 2026 is 0.035% per year — $0.35 for every $1,000 invested annually.² This is among the lowest bond-fund expense ratios available anywhere, including retail options:

Unlike the C and S Funds — where the TSP's cost advantage over retail options is essentially nil at this price level — the F Fund is one of the rare cases where rolling to an IRA and buying BND or AGG would save a small amount ($10–$20 per year on $200K). At typical TSP balances, that difference is irrelevant against return volatility. The F Fund's cost is not a meaningful reason to roll to an IRA.

Duration risk: the mechanics of F Fund losses

The concept that matters most for understanding the F Fund is duration. Duration measures how sensitive a bond's price is to a change in interest rates. The Bloomberg US Aggregate has an average duration of approximately 6 years.³

What 6-year duration means in practice:

• If market interest rates rise by 1%, the F Fund loses approximately 6% in price
• If rates rise by 2%, the F Fund loses approximately 12% in price
• If rates fall by 1%, the F Fund gains approximately 6% in price

The relationship isn't perfectly linear at large moves (a concept called "convexity"), but this rule of thumb is accurate enough for planning purposes.

F Fund performance history

The F Fund's multi-year returns tell the story of a bond fund through two full interest-rate cycles — the 2008–2021 era of falling rates, and the 2022–2024 era of rising and elevated rates. Historical TSP F Fund returns as of May 12, 2026:⁴

Three observations from this table:

1. The 5-year number tells the whole 2022 story. Five years of investing in the F Fund — through a full rate cycle — returned 0.3% annualized. That's not a typo. The 2022 rate shock wiped out several years of coupon income. The G Fund delivered 3.7% over the same period with zero volatility.
2. The 1-year number shows what happens when rates fall. As the Fed cut rates through late 2024 and 2025, bond prices recovered. The F Fund returned 5.3% in the trailing year — slightly above the G Fund's 4.5%. This is the F Fund working as designed: benefiting from a rate decline.
3. Over very long horizons, they're roughly even. Since inception (1988), the F Fund's CAGR and the G Fund's roughly match. This makes sense conceptually: both track investment-grade fixed-income markets over the long run. The difference is how you get there — the F Fund takes a bumpy ride while the G Fund moves steadily upward.

The G Fund vs F Fund decision

For most federal employees, this is the core fixed-income question in TSP. The G Fund has a structural advantage inside TSP that doesn't exist in an IRA:

The G Fund's principal guarantee is particularly valuable inside TSP because you cannot replicate it in an IRA. Any "stable value" equivalent outside TSP (money market funds, Treasury ETFs, FDIC-insured CDs) is either lower-yielding, shorter-duration, or subject to different constraints. The G Fund earns a long-term Treasury rate with overnight-deposit safety — a combination that doesn't exist commercially.

The F Fund makes sense when:

• You have a long time horizon and want full bond-market exposure including corporate credit spreads
• You believe rates will fall from their current level and want to capture that price appreciation
• You're managing an L Fund alternative yourself and want a complete fixed-income component (some sophisticated allocators prefer G+F over L Fund because they can control equity allocation more precisely)
• You're early in your career and are comfortable accepting F Fund volatility alongside your equity allocation

The G Fund wins when:

• You're within 5 years of retirement and need stable, predictable value for the income-floor bucket
• You can't accept a 10%+ loss in your fixed-income allocation from a rate spike
• You want the highest-certainty TSP-unique advantage (no reason to keep it in an IRA if you roll over)
• You're already retiring in the current elevated-rate environment and the G Fund's yield is competitive

How much F Fund is in each L Fund

Every Lifecycle (L) Fund includes an F Fund allocation that increases as the target date approaches and the overall portfolio shifts from equities to fixed income. Approximate F Fund weights by target date (May 2026):⁵

Notice that even the L Income fund — which is the most conservative L Fund, designed for participants already drawing down — holds only 6% F Fund while 66% sits in the G Fund. The FRTIB's own L Fund design reflects a strong preference for the G Fund as the safe fixed-income component, with F Fund playing a small supporting role across all target dates.

If you're building your own allocation instead of using an L Fund, this is useful calibration: the TSP's own target-date framework puts most of the fixed-income weight in G, not F.

F Fund allocation by career stage

Early career (20–40): F Fund is optional, not essential

A federal employee 20+ years from retirement has little reason to hold the F Fund at all. The case for bonds in an early-career TSP is already weak — a long time horizon means equity volatility is recoverable, and bonds primarily serve as a volatility damper for people who need to spend their portfolio in the near term. If you're 30 years old, your primary goal is to accumulate equity exposure (C+S+I), not to dampen volatility with bonds.

If you do want some fixed-income exposure early, the G Fund is a better choice than the F Fund: it provides stability without duration risk, and the yield is currently competitive. There's no advantage to bearing duration risk when you're not trying to capitalize on a rate forecast.

Mid-career (40–55): modest F Fund may have a role in a diversified allocation

A federal employee building a three-bucket retirement structure — equities for growth, fixed income for stability, G Fund as income floor — may hold a small F Fund allocation (5–10%) for bond-market exposure. The rationale: corporate credit spreads embedded in the Bloomberg Agg have historically delivered a small return premium over pure government bonds over long horizons, and the F Fund captures that at essentially no additional cost.

This is a nuanced allocation, not a default. If you can't clearly articulate why you're holding F Fund instead of G Fund, default to G Fund.

Near-retirement and in-retirement: G Fund as income floor, F Fund as optional supplement

Federal employees retiring with FERS pensions often have significant pension income that covers most living expenses. TSP withdrawals fill the gap. For the gap-filling portion, the income-floor approach — holding 2–3 years of planned TSP withdrawals in G Fund so you never have to sell equities during a downturn — is the most practical structure.

In this framework, the F Fund sits between the equity bucket (C+S) and the income-floor bucket (G). Some retirees hold a small F Fund allocation as an intermediate sleeve, gradually replenishing the G Fund floor as it's drawn down. Others simplify to G + C/S only, reasoning that the F Fund adds complexity without clearly improving outcomes. Both approaches are defensible.

Interfund transfer limits and the F Fund

TSP allows two unrestricted interfund transfers per calendar month. After the second, any additional transfer must move funds into the G Fund only — you cannot move between other fund pairs until the next calendar month.⁶

For F Fund holders, this matters in one specific scenario: if you move from F Fund to G Fund during a rate-rise event (trying to avoid bond losses), you cannot move back into the F Fund or equities until your next IFT allowance. Rate changes that cause F Fund losses often reverse or stabilize unpredictably — the IFT limit makes tactical F Fund maneuvering extremely difficult, and the research on market timing in bond funds shows it rarely works even for professionals. A buy-and-hold or simple annual-rebalancing approach is appropriate for the F Fund.

F Fund common mistakes

1. Holding F Fund as a "safe" alternative to equities: The F Fund is not a principal-protected fund. In 2022, a federal employee who moved from C Fund to F Fund to "de-risk" near retirement lost 13% on the bond position while the C Fund fell then recovered. The G Fund is the only TSP fund that is genuinely safe in the sense of not losing nominal principal.
2. Moving to F Fund based on a rate forecast: The F Fund is attractive when rates are expected to fall. But timing interest rates is empirically as difficult as timing the stock market. If your rate forecast is wrong, you bear duration risk with no compensation. Unless you have strong conviction about rate direction (and evidence you can forecast it correctly), don't use the F Fund as a tactical trade.
3. Ignoring the G Fund's uniqueness: Many federal employees underweight the G Fund because it "feels like cash" and they want "real" fixed income. The G Fund is not cash — it earns Treasury-equivalent yields with zero duration risk, a combination unavailable commercially. If you roll to an IRA and buy BND, you're trading away a genuinely unique asset.
4. Overweighting F Fund as a bond-market diversifier: The Bloomberg US Agg has high correlation with G Fund over time — both are investment-grade, rate-sensitive instruments. The diversification benefit of F Fund over G Fund is limited. For genuine portfolio diversification, the C, S, and I Funds (equities) provide far more differentiation from fixed income than F Fund provides from G Fund.
5. Not understanding the L Fund's F Fund allocation: If you're in an L Fund and also hold separate F Fund manually, you likely have more F Fund exposure than you realize. Check the L Fund's underlying allocations before adding standalone F Fund.
6. Holding F Fund in a declining yield environment and then switching to G Fund after losses: This is the worst sequence — you hold through a rate-rise period (taking the losses), then switch to G Fund just as yields stabilize or fall (missing the price recovery). The F Fund's damage from 2022 was substantially recovered by 2024–2025 for those who stayed in it. Switching out after losses locks in permanent underperformance.

1. F Fund — tsp.gov. Official description of the F Fund: Bloomberg US Aggregate Bond Index, fund structure, asset manager (BlackRock), investment objective. Verified May 2026.
2. TSP Fund Information May 2026 — tsp.gov. Administrative and investment expense ratios for all TSP funds. F Fund total expense: 0.035% ($0.35 per $1,000 balance).
3. F Fund — tsp.gov. Bloomberg US Aggregate Bond Index characteristics including approximate effective duration of ~6 years. Verified May 2026.
4. TSP F Fund Performance — TSP Folio. Historical F Fund returns: 1-yr +5.3%, 3-yr +3.5%, 5-yr +0.3%, 10-yr +1.7%, since inception +5.3% CAGR. Data as of May 12, 2026.
5. Lifecycle Funds — tsp.gov. L Fund target allocations and glide path. F Fund and G Fund weights by target date verified against TSP Fund Information May 2026. Allocations approximate as of May 2026; FRTIB adjusts quarterly.
6. 5 CFR Part 1601 — Participants' Choices of TSP Funds. Federal regulation governing interfund transfer rules: two unrestricted IFTs per calendar month; subsequent transfers restricted to the G Fund only.

Performance figures from TSP Folio as of May 12, 2026. Expense ratio from TSP Fund Information May 2026. Bloomberg US Agg composition is approximate and shifts over time. Past performance does not predict future results.