Since so many federal employees and retirees are members of the ER forum, I decided to ask a question I have about the G-Fund here.
The G-Fund interest rate is computed as a weighed average of US Treas securities with 4 or more years to maturity with an average duration of about 10 years.
This is great in a falling interest rate environment but will there be a "weighted" ten year lag in the G-Fund rates in a growing interest rate environment since an overwhelming number of very low rate securities have been sold which are unlikely to find buyers and get good turnovers/redemptions in a rising rate environment?
I guess I don't understand how, going forward, the G-Fund can "earn a higher rate of return than do short-term marketable Treasury securities" and I wonder if this precise situation may explain the hedge-word "usually" that accompanies the phrase. The last graph in the fund document:
looks like the G-Fund indeed has been having a flat response to rising rates in recent years compared to the early 90s. Is this because of the number of years rates have been kept low and the number of low rate securities with long maturities outstanding?