COFI Falls to New Low

A decline of nearly 4 basis points sent the Eleventh Federal Home Loan District Cost of Funds Index to a new record low in March.The Federal Home Loan Bank of San Francisco said the index for March was 2.210%, compared with 2.257% in February. The current index is 44 bps below where it was one year ago, and 63 bps below its peak in July 2002. COFI lags other interest rates by three to six months. In March 2002 (about five months before COFI peaked), the rate on the six-month certificate of deposit was 94 bps higher than it is now, according to data from the Federal Reserve Bank of St. Louis. That was the most recent peak for that product. In November 2002, the six-month CD rate was down 76 bps (a drop of nearly 30 bps from October). This indicates that COFI (which is a weighted average of the rates paid by thrifts for mortgage funds, including deposits) could drop another 15-20 bps. If so, COFI could be threatening to break the 2.0% barrier by the end of the summer, if not sooner.