Q: If the government defaults on their debt on Aug. 2, what would happen to the G Fund? Which TSP fund would be the safest?
A: Under the current law, any failure to fund the G Fund as specified must eventually be made up. The principal and returns are guaranteed by the federal government, which remains the best guarantee you’ll find. The G Fund is still the most secure of the five funds.
1 Comment
I understand that by law the tsp must be “made whole” such that the funds being cashed out to fund current operations instead of reinvested, must be put back into the fund with interest as if they had been reinvested as scheduled. What I do not understand is, if the government defaults on repaying debt (principal & interest on treasuries) due to debt ceiling, and then the market reprices treasuries to account for risk (higher yield, lower price) does this price decrease in current treasuries then lower the share price of the g fund as the treasuries it holds are now worth less? Or are they always held to maturity so there is not a loss on selling them, just that inflation % will be significantly higher than the g fund return for years? If it is this second idea, then G fund is still a great short-term way to shelter from a large drop in equities if the scenario comes to fruition.