Trump blasts employment data as "fake," igniting a trust crisis; is the $2 trillion TIPS market hanging by a thread?

According to the Zhitong Finance APP, bond investors warn that if the U.S. Bureau of Labor Statistics (BLS) becomes a political tool, the $2 trillion market for Treasury Inflation-Protected Securities (TIPS) could become the first area of government bonds to collapse.

Last Friday, U.S. President Trump fired BLS Director Erica McTavish after a weak employment report was released, accusing the data of being "falsified." This move has sparked deep concerns in the market about the credibility of government data, which 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, and interest payments are based on the adjusted principal. "If the BLS is politicized and the credibility of the data is compromised, it will pose a huge risk to the TIPS market in the long run," said Amar Reganti, fixed income strategist at Hartford Funds.

Michael Feroli, chief U.S. economist at JP Morgan, agrees: "The $2.1 trillion TIPS market is entirely built on the credibility of CPI data compilation."

"The integrity of this data is at least as important as employment data," Feroli emphasized in a research report last Sunday, "even seemingly harmless technical adjustments can have significant impacts." For example, using the European Union's calculation method "would lower the annual inflation rate by about 20 basis points."

The CPI data for July, which will 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.

Bloomberg macro strategist Simon White stated: "Economic data does not fluctuate randomly. Instead, there are continuous correlations between different types of data that can indicate whether the data has been interfered with. This is crucial for traders and investors who need to distinguish between noise and valid signals in the data."

Despite Trump's continued pressure on the Federal Reserve to cut interest rates, his tariff policies are driving up prices across the U.S. However, last week's weak employment data led more investors to bet on a rate cut next month, with short-term Treasury yields experiencing their largest drop since the end of 2023 last Friday.

TIPS Rally Continues

Persistent inflation over the past year has boosted TIPS performance, with the Bloomberg U.S. Inflation-Linked Bond Index rising 5.7% in 2025, on track for its best annual performance since 2021. Currently, inflation-protected bonds account for about 7% of the total U.S. Treasury market. Given the massive financing needs of government debt, the U.S. Treasury has recently hinted at increasing the issuance of some TIPS.

Reganti stated: "The Treasury will need to use all its tools to fulfill its responsibilities, especially after the passage of the Inflation Reduction Act. The trust placed in the Treasury market by the Secretary of the Treasury far exceeds any authority that private issuers can obtain."