Bond investors are warning that if the U.S. Bureau of Labor Statistics (BLS) becomes a political tool, the $2 trillion Treasury Inflation-Protected Securities (TIPS) market could be the first sector to collapse.

President Trump fired BLS Director Erica McTaff last Friday following a weak jobs report, accusing the data of "faking it." This move has sparked deep market concerns about the credibility of government data, which has a significant impact on asset pricing.

This correlation is particularly pronounced in the TIPS market. The principal value of these bonds is directly linked to the Consumer Price Index (CPI) compiled by the BLS, and interest payments are based on the floating principal. "If the BLS becomes politicized and the credibility of its data is damaged, it will pose a significant risk to the TIPS market in the long term," said Amar Reganti, fixed income strategist at Hartford Funds.

Michael Feroli, JPMorgan Chase's chief U.S. economist, agreed: "The $2.1 trillion TIPS market is entirely built on the credibility of the CPI data."

"The integrity of this data is at least as important as the employment data," Feroli emphasized in a research note last Sunday. "Even seemingly innocuous technical adjustments can have significant consequences." For example, adopting the EU calculation method "would reduce the annual inflation rate by about 20 basis points."

Next week's July CPI data will be highly anticipated, with economists expecting both headline and core inflation to remain above the Fed's 2% target.

"Economic data does not move randomly. Instead, there are consistent correlations between different types of data, which can indicate whether the data is being manipulated. This is crucial for traders and investors to distinguish between noise and valid signals in the data."

Despite continued pressure on the Fed to cut interest rates by Trump, his tariff policy is pushing up prices across the country. However, last week's weak employment data has increased investor bets on a rate cut next month, sending short-term Treasury yields down the most since late 2023 on Friday.

TIPS Continue to Rise

Stubborn inflation over the past year has boosted TIPS performance. The Bloomberg U.S. Inflation-Linked Bond Index has risen 5.7% so far this year, on track for its best annual performance since 2021. TIPS currently account for approximately 7% of total U.S. Treasury bonds. Given the massive government debt financing needs, the U.S. Treasury has recently hinted at increasing some TIPS issuance.

Reganti stated, "The Treasury will need to use all its tools to fulfill its mandate, especially following the passage of the One Big Beautiful Bill Act. The Treasury market places a far greater degree of trust in the Treasury Secretary than any private issuer could ever possess."