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Impact of the Fed taper: The Treasury International Capital report

Impact of the Fed taper: The Treasury International Capital report (Part 1 of 8)

Impact of Fed’s taper: The Treasury International Capital report

The Treasury International Capital report was one of the most important releases last week for U.S. debt markets. Issued on Tuesday, February 18, by the U.S. Treasury Department, the release reported on cross-border portfolio investment flows and positions between U.S. and foreign residents for the month of December 2013. December’s report is particularly important as fixed income investors can see the impact of the Fed’s December 18 tapering announcement on overseas net demand for U.S. debt and other U.S. securities.

Part 1Enlarge GraphHighlights from February’s TIC release

The TIC reported a net outflow in net foreign acquisitions of long-term and short-term securities and banking flows of $119.6 billion in December. This was a sharp fall from November’s net outflow of $16.6 billion. Out of the net outflow of $119.6 billion, net foreign private outflows contributed $119.9 billion and net foreign official inflows contributed $0.3 billion.

A net outflow implies that U.S. investors and institutions purchased more securities abroad than their foreign counterparts’ purchases of U.S. securities. An inflow would have implied the opposite.

Net foreign purchases of the U.S. Treasury securities clocked in at $17.9 billion in December, up from November’s $11.3 billion. However, foreigners sold $15.4 billion of U.S. agency-backed securities on a net basis, up from November’s figure of $0.5 billion. Foreign residents increased their holdings of the U.S. Treasury Bills by $33.7 billion.

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