File History Bug - Retains Only Last Version of Each File

I've just discovered what I believe to be a serious bug in File History on Windows 8.1.  Here's what's happening:
My files are backed up using File History on a 1TB external USB hard drive with 17.5GB free.  Currently 9GB of selected documents, etc., is being backed up and the aforementioned free space is what is available after 9GB has been backed up.  My
File History settings are pretty normal / default.  It backs up every hour.  However, I've set it to keep saved versions 'until space is needed'.  I noticed recently that, despite having plenty of free space, File History has only been retaining
the last copy of each of my backed up files.  It didn't communicate this to me, e.g., via an error.  I just happened to look to see how many versions were being retained.
I've played around with it a bit to investigate.  First I blew away my FileHistory folder on the external drive and also the FileHistory folder from my user profile cache then set File History up again from scratch.  I then ran a completely fresh
backup and changed some files and ran File History again.  This did not fix the bug.  File History was still retaining only the last file version and not notifying me of why or of any problem.  I checked the FileHistory-Core and FileHistory-Engine
logs and, of course, no relevant errors were logged (typical for Windows event logs by the way).  
I then tried changing the retention setting from 'until space is needed' to '1 year' and tested again by changing files and running File History.  It appears to be retaining earlier versions and working now.  
This definitely looks like a bug to me.  Have Microsoft confirmed this and are they working on a fix ?
It makes me wonder if File History keeps a large free space threshold when you specify 'until space is needed', e.g., 10GB or 1% of drive size.  When free space drops below this value, only one backup copy (the last one) is retained for each file.  Is
this the case ?  Why doesn't it communicate this to the user ?
Details:
O/S: Windows 8.1 Pro x64 (upgraded in-place from 8.0)
HDD: Western Digital MyBook 1TB (no 3rd party software installed for this).
"Keep a cool head and always carry a lightbulb."

Hi,
Windows use this following API to determine if previous retention should be deleted:
FH_RETENTION_TYPES which specifies under what conditions previous versions of files and folders can be deleted from a backup target
The operating system deletes previous versions from a backup target only when the target is full.
 According to your description, your external drive should be less than 10% free space, this is a low disk space warning in system.
Above, this is just my hypothesis, I did some test in my environment, when the disk free space is more than 10%, I can see multiple versions of file history, but when it is less than 10%, it would just keep the latest modification version.
Alex Zhao
TechNet Community Support
Thanks for clarifying this Alex.  I still consider this a bug / design flaw in Windows as it is pruning backups long before the drive is actually full.  If there is, as you say, a large 10% low space threshold, the system should communicate to the
user that it is pruning all but one copy of backup files.  Could this be logged as a bug please ?
"Keep a cool head and always carry a lightbulb."

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