Tax-free municipal bonds produced strong returns in the third quarter, outperforming taxable bonds. Munis were one of the best-performing asset classes to date in 2015 as higher-risk assets fell sharply in recent months in response to China's economic deceleration and tumbling commodity prices. Prices of U.S. Treasury and municipal bonds rallied and yields fell on the news that the Federal Reserve opted not to increase the federal funds rate at its September policy meeting as adverse international developments offset an improving jobs market. Longer-maturity municipals generally outperformed shorter-maturity bonds as the municipal yield curve flattened over the period.
The New Jersey Tax-Free Bond Fund returned 1.52% in the quarter compared with 1.16% for the Lipper New Jersey Municipal Debt Funds Average. For the 12 months ended September 30, 2015, the fund returned 2.78% versus 1.50% for the Lipper New Jersey Municipal Debt Funds Average. The fund's average annual total returns were 2.78%, 4.15%, and 4.31% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.51% as of its fiscal year ended February 28, 2015.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
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.
Our limited 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 despite improved revenues. We are concerned about New Jersey's fiscal outlook given that the state faces significant future liabilities for pension and other post-employment benefitobligations. As a result of the state's ongoing fiscal problems, we stayed vigilant about keeping our direct exposure to the State of New Jersey at historic lows and continued to reduce our holdings. We maintained sizable allocations to the health care and transportation sectors. The fund's duration-a gauge of its sensitivity to interest rate changes-was close to that of the Barclays index.
The New Jersey Supreme Court recently upheld Governor Chris Christie's fiscal year 2015 pension contribution, which was far below statutorily required levels. While this ruling allowed the state to avoid significant budgetary stress at the end of the fiscal year, inadequate contributions will further strain the pension funds going forward. Nevertheless, we believe that the broad municipal bond market is a high-quality market with good opportunities for long-term investors seeking tax-free income. We have longer-term concerns about funding shortfalls for pensions and OPEB obligations in jurisdictions such as New Jersey. While the magnitude of unfunded pension and OPEB liabilities is becoming more conspicuous in a few states, few large plans are at risk of insolvency in the near term. Ultimately, we believe that 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.