Federal debt ceiling and fund G (1% increase in September)

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A government “shutdown” is looming due to the debt ceiling and obvious political differences in Congress. We do not know if the debt ceiling will be raised in time to avoid a temporary government shutdown.

How the debt ceiling affects the savings plan

Here is a statement from the TSP on the impact of the absence of a new debt ceiling on Fund G of the Thrift Savings Plan (TSP):

As of August 2, the US Treasury was unable to fully invest the Government Securities Investment (G) Fund due to the statutory limit on federal debt. However, investors in the G Fund remain fully protected and the income of the G Fund is fully guaranteed by the federal government. This legal guarantee has effectively protected investors in the G Fund on several occasions over the past 30 years. G Fun account balances will continue to generate income and will be updated each business day, and loans and withdrawals will not be affected.

Here is what is happening with Fund G and how the current situation is affecting the TSP.

The Government Securities Investment Fund (G Fund) is a government account used to finance the government in the short term. There are approximately $ 795 billion in assets in TSP, of which 33.7% is in Fund G. At the end of August 2021, 26.5% of TSP investor assets were in Fund G For core TSP funds, 33.7% of investor assets were in fund G.

Indeed, the Treasury Department is taking “extraordinary measures” to avoid hitting the current debt ceiling until Congress approves a new debt ceiling. One of these “extraordinary measures” is to use the assets of Fund G to help finance the federal government.

Indeed, a large number of federal employees contribute to the financing of the operations of the federal government, whether they know it or not.

On previous occasions, when this has happened, the TSP has issued the following statement:

The US Treasury has not been able to fully invest the Government Securities Investment (G) Fund due to the statutory federal debt limit. However, investors in the G Fund remain fully protected and the income of the G Fund is fully guaranteed by the federal government. This legal guarantee has effectively protected investors in the G Fund on several occasions over the past 25 years. G Fun account balances will continue to generate income and will be updated each business day, and loans and withdrawals will not be affected.

The redemption provision means that TSP participants who have invested in Fund G will not lose anything. The account balances of Fund G would be exactly the same on a day-to-day basis as if they were invested in Treasury securities. In addition, TSP loan disbursements and withdrawals would not be delayed, and the amounts of such payments would not be reduced.

Kim Weaver, director of external affairs for the Federal Retirement Thrift Investment Board (FRTIB), noted at the last public meeting that the FRTIB will not be affected by a shutdown because it is not operating with the proper funds.

TSP Fund Performance in September

TSP investors have grown accustomed to seeing positive returns. But, as those who invest in the stock market know, returns aren’t always positive. This was the case for most of the TSP’s core funds for September until the stock market close data on September 27th.

Here’s how the TSP core funds have performed so far in September.

Funds September return% % return since the beginning of the year
g 1 0.98
F -0.58 -1.13
VS -1.67 19.52
S -0.54 15.68
I -0.61 11.01

Events always have an impact on the price of shares. As central banks start to raise interest rates, this is having a negative impact on stock prices. Indeed, equities benefited from low interest rates. As inflation begins to rise, as it has so far in 2021, central banks are raising interest rates, which will often cause stock prices to fall.

Why does fund G rise when equity funds fall?

This change in direction also has an impact on bond prices. Note that fund G is up so far in September, the only TSP core fund to have a positive return. The yield on 10-year Treasuries has risen for six consecutive days.

Here is what the TSP writes about Fund G:

The investment objective of Fund G is to ensure the preservation of capital and generate higher returns than short-term US Treasury securities. Fund G invests in non-marketable US Treasury securities specially issued for the TSP. The Fund G rate is calculated by the US Treasury as the weighted average yield of approximately 153 US Treasury securities on the last day of the previous month.

Indeed, fund G is a counterweight to TSP equity funds in an investment portfolio. Stock prices usually go up more than fund G goes up. It’s not always the case. While the overall return of fund G is often lower than the return on stocks, fund G is likely to rise and provide a positive return when stock prices fall.

How TSP investors allocate their investments

Here is how investors in the Savings Plan have distributed their investments as of August 31, 2021.

  • Fund G: 26.5%
  • Fund F: 3.3%
  • Fund C: 31.9%
  • Fund S: 2%
  • I Fund: 3.9%
  • Fund L: 22.6%

FedSmith will release monthly reader returns for all TSP funds in early October.

© 2021 Ralph R. Smith. All rights reserved. This article may not be reproduced without the express written consent of Ralph R. Smith.


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