Tax-free municipal bonds produced positive returns and significantly outperformed taxable bonds in the fourth quarter. New Jersey municipal debt outperformed the broader national index in an environment that favored bonds offering higher yields. Munis were one of the best-performing fixed income asset classes in 2015, helped by strong demand from investors, diminishing supply in recent months, and insulation from turmoil in some global financial markets. The continued fiscal deterioration of Puerto Rico and the Federal Reserve's first rate increase in more than nine years had a limited impact on the broad muni market as technical factors remained supportive. Long-term municipal bonds outperformed shorter maturities as the yield curve flattened over the quarter, and lower-quality municipals generally outperformed higher-quality issues.
The New Jersey Tax-Free Bond Fund returned 1.94% in the quarter compared with 1.93% for the Lipper New Jersey Municipal Debt Funds Average. For the 12 months ended December 31, 2015, the fund returned 3.18% versus 2.22% for the Lipper New Jersey Municipal Debt Funds Average. The fund's average annual total returns were 3.18%, 5.52%, and 4.43% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.51% as of its fiscal year ended February 28, 2015.
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Our exposure to the state of New Jersey is well below that of our peer group and reflects our longstanding concerns about the state's underfunded pension system and persistent budgetary pressures. We maintained a sizable allocation to the health care sector, which typically offers higher-than-average yields, along with significant positions in education and transportation bonds. Due to our expectations for higher short-term rates as the Fed continues to normalize monetary policy, we kept an overweight to maturities of 15 years and longer. These longer-dated bonds also provide additional yield.
We believe that the municipal bond market remains a high-quality market that offers good opportunities for long-term investors seeking tax-free income. While fundamentals are sound overall and technical support should persist, investors should expect modest returns in 2016. Muni investors this year may just earn coupon income, possibly offset somewhat by declines in principal values. Muni bond yields are likely to rise this year along with Treasury yields, although probably not to the same extent. While higher yields typically pressure bond prices, we expect rate increases to be gradual and modest. Ultimately, 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.