The preliminary data for 2003 indicate that the effective yield on mortgage-backed securities, including adjustable-rate products, fell to 4.22 percent; by late in the year, yields had fallen to only about 3.90 percent. Along with this pressure on yields, banks have faced an interesting new pressure on funding costs.
For much of the last two years, households have been inclined to keep their assets very liquid and flexible. Interest rates have been low by historical terms, and didn't seem to provide much incentive for households to tie up their assets in time deposits.