3 Top-Performing Intermediate Government Bond Funds

Treasury funds can offer investors a stable base for a bond portfolio with minimum hassle. These three funds are some of the best options available, according to Morningstar analysts. We looked for the funds with the best returns over the last one-, three-, and five-year periods. All names that passed the screen were actively managed.

Intermediate Government Bond Fund Performance

• American Funds Mortgage Fund RMAGX
• PIMCO GNMA and Government Securities Fund PDMIX
• Vanguard GNMA Fund VFIJX

Over the last 12 months, these funds have returned 2.56%. On an annualized rate, they have returned 1.64% over the last three years and lost 0.88% over the last five. That compares with the Morningstar US Core Bond Index, which has returned 2.63% over the last 12 months, gained 2.19% per year over the last three years, and lost 0.86% per year over the last five years.

What Are Intermediate Government Bond Funds?

Intermediate government portfolios have at least 90% of their holdings in bonds backed by the US government or government-linked agencies. This minimizes the credit risk of these portfolios, as the US government is unlikely to default on its debt.

These portfolios have durations typically between 3.5 and 6.0 years. Consequently, the group’s performance (and volatility) tends to fall between those of the short government and long government categories. Morningstar calculates monthly breakpoints using the effective duration of the Morningstar Core Bond Index when determining duration assignment. Intermediate is defined as 75%-125% of the three-year average effective duration of the MCBI.

Screening for the Top-Performing Intermediate Government Bond Funds

To find the best intermediate government bond funds, we looked at returns data from the past one, three, and five years using Morningstar Direct. We screened for open-ended and exchange-traded funds in the top 33% of the category using their lowest-cost primary share classes for those periods. We also filtered for funds with Morningstar Medalist Ratings of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left three names.

Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. In addition, Medalist Ratings may differ among the share classes of a fund.

American Funds Mortgage Fund

• Morningstar Medalist Rating: Gold
• Morningstar Rating: ★★★★★

The $11.8 billion fund has climbed 3.58% over the past 12 months, outperforming the average fund in its category, which rose 2.56%. The fund, launched in November 2010, has climbed 1.92% over the past three years and 0.06% over the past five.

“American Funds Mortgage excels at a conservative approach to investing in mortgage-backed securities. That excellence stems from a veteran team behind this multimanager offering. Fergus MacDonald has run a sleeve of this fund since its 2010 inception and took over as head of the team in charge of monitoring aggregate fund-level exposures in early 2021. MacDonald assumed that leadership role from David Betanzos, who remains on the team and has run a portfolio sleeve here since 2013. Although Oliver Edmonds’ late-2019 start makes him the most recent addition to this strategy’s roster, he previously served as a mortgage-backed securities analyst for the fund and has been at Capital Group for over two decades.

“The three managers benefit from strong investment resources. They work closely with the fund’s two veteran agency MBS analysts, as well as six securitized analysts and Capital Group’s interest-rates group led by Ritchie Tuazon, who comanages alongside MacDonald and Betanzos on sibling American Funds US Government Securities.

“Keeping tabs on interest rates along with the yield premiums over Treasuries informs the team’s agency MBS-centered approach. Over the trailing year ended in March 2025, for example, the managers cut the fund’s MBS weighting from 90% to 76% of assets as option-adjusted spreads contracted. Meanwhile, over the same period, they increased the portfolio’s combined allocation to Treasuries and cash 14 percentage points to 21.3%

“The team’s caution tends to pay off in turbulent periods. Between Feb. 20 and April 8, 2025, worries about the economic impact of tariffs caused the S&P 500 to shed 18.75%. This fund, on the other hand, gained 2.12% over that stretch, second best out of the roughly 30 Morningstar Category rivals focused on agency MBS. In fact, this fund has placed in the top third or better of that customized peer group in every equity market drop of at least 10% since the fund’s late-2010 inception.

“The fund isn’t foolproof. Positioning the portfolio to benefit from an anticipated steepening of the yield curve hurt in 2023 and 2024, for example. Overall, though, the strategy has been a strong performer. The R6 shares’ 1.46% annualized return over the 10 years ended April 23, 2025, beat the Bloomberg US Mortgage-Backed Securities Index by 50 basis points while placing first among the 25 agency-MBS-focused peers within the intermediate government category with a track record that long. This fund remains a great option for agency MBS exposure.”

—Alec Lucas, director, active funds research

PIMCO GNMA and Government Securities Fund

• Morningstar Medalist Rating: Gold
• Morningstar Rating: ★★★★★

Over the past 12 months, the $1.3 billion fund has gained 3.28%, while the average fund in its category is up 2.56%. The PIMCO fund, launched in July 1997, has climbed 2.19% over the past three years and lost 0.11% over the past five.

“Pimco GNMA and Government Securities’ skilled team employs a disciplined, risk-conscious approach. Lead manager Dan Hyman co-heads Pimco’s agency mortgage-backed securities team with Mike Cudzil, his comanager here since early 2013. Their seven-person dedicated agency MBS team includes Munish Gupta, who joined the fund as a comanager in August 2022.

“The team analyzes historical yield levels to identify relative value between MBS issued by GNMA, Fannie Mae, and Freddie Mac, across the bonds’ coupon rates and home-loan collateral types. Pimco has built analytical advantages in understanding securitized sectors at a granular level, but the team focuses primarily on relative value trading of specified pools of mortgages versus TBAs (generic, forward mortgage contracts). That may include zeroing in on pools with appealing traits but nearly always focusing on assembling long and short combinations of mortgages.

“The strategy’s institutional shares performed well ahead of most peers among a distinct subset of mortgage-focused government funds (and government funds more broadly, as well) in both 2023 and 2024. That owed in part to an overweighting in more recent vintage mortgages with generous yields and floating-rate tranches that benefited from higher short-term rates, as well as decisions on which specific coupons to take long or short positions.

“While 2022 wasn’t catastrophic, it did prove a weak point. Hyman and the team went into that year underweight agency mortgage exposure but began to add as the Federal Reserve reversed its long-standing mortgage-buying habit and valuations fell, allowing some leverage to build. The sector kept cheapening, though, the portfolio’s duration extended, and the team’s preference for then higher-coupon 3.5% and 4% mortgages and an underweighting in lower-coupon 2% and 2.5% mortgages added insult to the injury. The institutional shares placed near the bottom of its peer group for 2022.

“The team’s value-driven sensibilities have guided the strategy to much stronger results over the long term, though. Since Hyman took over in January 2013, it has outperformed the average (distinct) mortgage-focused government fund in every year but 2013 and 2022, and its overall record during his tenure has been among the best.”

—Eric Jacobson, senior principal, fixed-income strategies

Vanguard GNMA Fund

• Morningstar Medalist Rating: Silver
• Morningstar Rating: ★★★★

Over the past 12 months, the $11.1 billion Vanguard GNMA Fund rose 2.94%, while the average fund in its category rose 2.56%. The fund, launched in February 2001, has climbed 1.90% over the past three years and lost 0.28% over the past five.

“Vanguard GNMA’s team is heading in the right direction, but recent analyst turnover requires more time to prove its efficiency. Wellington Management, the subadvisor for this strategy, offers strong research resources within its fixed-income group and has added team members with securitized and quantitative expertise in the past few years. However, this newer team needs more time to work together to prove its efficiency. Lead manager Brian Conroy took over the strategy after former lead Michael Garrett’s June 2020 retirement. Conroy, with nearly two decades of securitized debt market experience, joined Garrett’s team in 2012 as an agency mortgage analyst and became comanager in May 2019. Joe Marvan, who comanaged alongside Conroy, dropped off the roster in May 2022 after limited involvement but remains with the firm.

“A disciplined approach results in strong execution within the fund’s narrow Government National Mortgage Association mandate. The strategy features GNMA mortgage pass-throughs, and the process aims to identify mispriced structures in the securitized debt market while limiting interest-rate risk. The portfolio allocates 10%-15% of assets to non-GNMA when they offer better relative value. The team avoids riskier nonagency stakes and more volatile structures, opting for government-backed CMOs, including seasoned agency credit-risk transfers where it finds attractively priced bonds. The disciplined approach enhances collaboration, with the manager regularly engaging with analysts and traders to discuss opportunities and risks. The team calibrates the portfolio’s prepayment risk by evaluating macroeconomic factors and underlying loan characteristics using various mortgage models. Duration, a measure of interest-rate sensitivity, typically stays within 0.5 year of the Bloomberg US GNMA Bond Index, with occasional adjustments beyond this range.

“Long-term performance is compelling versus peers. Over Conroy’s tenure since June 2019 (his first full month as a comanager), the admiral share class’ 0.6% annualized gain through September 2024 outpaced three fifths of peers. The strategy typically beats peers in normal and rising yield periods thanks to its typical shorter-than-peers duration profile. Eschewing Treasuries, however, the fund has more drawdown than its peer median during credit-driven selloffs, delivering a bumpier ride at times.”

—Ken Noguchi, associate analyst