Trump's blasting of employment data "falsification" triggers trust crisis, $2 trillion TIPS market on the brink?

Bond investors are warning that if the Bureau of Labor Statistics (BLS) in the United States falls victim to political manipulation, the $2 trillion market for Treasury Inflation-Protected Securities (TIPS) could become the first area of government debt to collapse. President Trump fired BLS Commissioner Erica McTaff last Friday following the release of a weak jobs report and accused the data of being "fake," sparking deep concerns in the market about the credibility of government data data that has a significant impact on asset pricing. This correlation is particularly evident in the TIPS market. The principal value of this type of bond is directly linked to the Consumer Price Index (CPI) compiled by the BLS, while interest payments are based on the adjusted principal. "If the politicization of the BLS leads to a loss of credibility in the data, it will pose a huge risk to the TIPS market in the long run," said Amar Reganti, a fixed income strategist at Hartford Funds. Michael Feroli, Chief U.S. Economist at JPMorgan Chase, agreed, stating, "The $2.1 trillion TIPS market is entirely built on the credibility of CPI data." "These data are at least as important as employment data," Feroli emphasized in a research report last Sunday, "even seemingly harmless technical adjustments can have significant implications." For example, using EU calculation methods "could decrease the annual inflation rate by about 20 basis points." The July CPI data to be released next week is highly anticipated, with economists expecting both overall and core inflation rates to remain above the Federal Reserve's 2% target. Simon White, macro strategist at Bloomberg, said, "Economic data is not randomly distributed. On the contrary, there is a continuity between different types of data that can indicate whether the data has been tampered with. This is crucial for traders and investors who need to distinguish between noise and valid signals in the data." Despite Trump continuing to pressure the Federal Reserve to lower interest rates, his tariff policies are driving up prices across the country. However, the weak jobs data last week led more investors to bet on a rate cut next month, causing a significant drop in short-term bond yields last Friday. TIPS continue to rise Stubborn inflation over the past year has boosted TIPS performance, with the Bloomberg U.S. Inflation-Linked Bond Index 2025 up 5.7% and on track to deliver the best annual performance since 2021. Currently, TIPS account for about 7% of total U.S. government debt. Given the huge financing needs of the government, the U.S. Treasury has indicated that it may increase the issuance of TIPS in the near future. Reganti stated, "The Treasury will need to use all its tools to fulfill its responsibilities, especially following the passage of the Build Back Better Act. The trust that the bond market places in the Treasury Secretary far exceeds the authority that any private issuer could achieve."