F fund vs BND

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  • #22947
    Kurt
    Guest

    Hi! I own some BND in my outside retirement account however the F fund seems to constantly outperform it. Is that an unfair comparison or is there some reason behind the outperformance?

    I’m considering moving stuff around so my bond exposure is in my TSP instead of my Vanguard…

    #23519
    TS Paul
    Keymaster

    Usually BND performance would be very close to the TSP F Fund, but because of the Fed’s intervention in the bond market they are much further apart than usual. The reason for that is BND tracks the Barclays Capital US Aggregate Float Adjusted Bond Index which is identical to the Barclays Capital US Aggregate Bond Index (which is what the F Fund tracks) except that it does not include bonds held by the Federal Reserve. Because treasuries currently make up 1/3rd of the index, and the Fed currently owns about $2.5 Trillion in treasuries, that is a very significant change.

    The Fed is likely to start winding down those huge positions towards the end of this year by not reinvesting funds received after treasuries mature, so the two indexes will start to come back into alignment. It will take awhile though – about 40% of the treasuries held by the Fed have maturities of greater than 5 years.

    The TSP Allocation Guide www.TSPallocation.com

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