At an individual bonds maturity I get the full principal back. How do I do that principal back from a bond fund if the value has dropped due to the macro environment?
The value will have dropped, but the distributions/dividends you got in the meantime will have made up the difference. The fund and its underlying holdings must end up even in the end (minus fees).
But in either case, you still get whacked with inflation, which would show up on this chart as a drop.