Maryland municipal bonds generated solid third-quarter returns that were roughly in line with longer-term Treasuries. Long-term and lower-quality investment-grade municipals generally outperformed short-term and high-quality issues, respectively. The T. Rowe Price economics team believes that the Federal Reserve will wind down its asset purchase program in October, and short-term interest rate increases are likely to begin in mid- to late 2015. Over the past three months, long-term yields declined, while short- and intermediate-term yields increased. Revenue bonds generally outperformed local and state general obligations. Maryland's general obligation bonds are rated Aaa by Moody's Investors Service and AAA by Standard & Poor's and Fitch. All of the major rating agencies maintain stable outlooks.
The Maryland Tax-Free Bond Fund returned 1.57% in the quarter compared with 1.47% for the Lipper Maryland Municipal Debt Funds Average. For the 12 months ended September 30, 2014, the fund returned 8.19% versus 6.52% for the Lipper Maryland Municipal Debt Funds Average. The fund's average annual total returns were 8.19%, 4.78%, and 4.49% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.46% as of its fiscal year ended February 28, 2014.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Maryland Tax-Free Bond Fund is managed with a buy-and-hold orientation. Once we buy bonds for the fund, we generally expect to hold them until maturity. Our largest allocations, health care and transportation, are good sources of yield in the municipal market. Our additions continue to emphasize revenue bonds, favoring the relative security of specific claims on revenues versus generic pledges of taxing power associated with general obligations. We see more value in long-maturity bonds than in shorter-term municipals. From a credit perspective, we favor fundamentally sound bonds in the lower-quality end of the investment-grade universe as well as select high yield names that offer attractive yields.
We intend to continue to overweight revenue bonds, which typically provide more yield than most other segments in the muni market. Fundamentally, the credit environment for municipalities is sound and should improve with the economy. We believe T. Rowe Price's independent credit research is our greatest strength and will remain an asset for our investors as we navigate the current market environment. As always, we are on the lookout for attractively valued bonds issued by municipalities with good long-term fundamentals, an investment strategy that we believe will continue to serve our investors well.