Tax-free municipal bonds produced gains in the first quarter of 2015 but lagged taxable bonds. Munis benefited from a rally in Treasuries as longer-term interest rates declined amid slowing U.S. economic growth, low inflation, attractive yields over non-U.S. sovereign debt in developed countries, and a belief that the Federal Reserve was in no rush to raise short-term interest rates. In the muni market, lower-quality, longer-maturity revenue bonds generally outperformed higher-quality, short-maturity issues and general obligation (GO ) debt as investors continued to seek attractive yields in the ongoing low-rate environment.
The New Jersey Tax-Free Bond Fund returned 1.09% in the quarter compared with 0.68% for the Lipper New Jersey Municipal Debt Funds Average. For the 12 months ended March 31, 2015, the fund returned 7.49% versus 6.25% for the Lipper New Jersey Municipal Debt Funds Average. The fund's average annual total returns were 7.49%, 5.21%, and 4.58% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.52% as of its fiscal year ended February 28, 2014.
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The State of New Jersey remains the fund's largest guarantor, but we have reduced our exposure to historically low levels and well below that of our peer group due to our ongoing concerns about the state's increased budgetary pressures. We increased our allocation to health care, which remains the largest sector, as well as our exposure to the special tax sector. We continue to favor hospitals and select life care names for their attractive yields, though opportunities in these areas are difficult to find. The fund's duration, a gauge of its sensitivity to interest rate changes, was close to that of the Barclays index. We are concerned about New Jersey's fiscal outlook. New Jersey faces significant future liabilities for pensions and other post-employment benefits (OPEB). The state has taken steps toward pension reform but continues to fall short of its annual required contribution for pensions.
We continue to 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, there could be hurdles later in 2015. In particular, with the Fed preparing to tighten monetary policy, we are mindful that rising rates would likely weaken the appetite for bonds with higher interest rate risk. We also have some longer-term concerns about significant funding shortfalls for pensions and OPEB obligations in some jurisdictions. History has shown that when negative headlines spark a muni sell-off, cheap valuations tend to be short-lived. We believe this resilience will endure, but it is critical to possess the fundamental research prowess to avoid the deteriorating credits at the center of any storm. Ultimately, we believe T. Rowe Price's independent credit research is our greatest strength and will remain an asset for our investors in the current market environment.