Low rates continued to suppress income for money market investors in the second quarter as money market rates stayed closely tied to the Federal Reserve's fed funds target range of 0.00% to 0.25%. However, for the first time in over six years, the prospect of higher short-term rates looms on our investment horizon. The Fed, which has kept short-term interest rates near 0% since the 2008 financial crisis, is expected to start tightening monetary policy later in 2015, perhaps as early as September, although Fed officials have assured markets that any rate increases will be small and gradual.
The California Tax-Free Money Fund returned 0.00% in the quarter compared with 0.00% for the Lipper California Tax-Exempt Money Market Funds Average. For the 12 months ended June 30, 2015, the fund returned 0.01% versus 0.01% for the Lipper California Tax-Exempt Money Market Funds Average. The fund's average annual total returns were 0.01%, 0.01%, and 0.88% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.69% as of its fiscal year ended February 28, 2015. The fund's seven-day simple annualized yield as of June 30, 2015, was 0.01%. Its seven-day simple annualized yield without waiver was −0.45%.* The fund's yield more closely reflects its current earnings than the total return.
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. Return and yield will vary.
An investment in money market funds is not insured or guaranteed by the FDIC
or any other government agency. Although the fund seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
*In an effort to maintain a zero or positive net yield for the fund, T. Rowe Price has voluntarily waived all or a portion of the management fee it is entitled to receive from the fund. A fee waiver has the effect of increasing the fund's net yield. The 7-day yield without waiver represents what the yield would have been if we were not waiving our management fee. This voluntary waiver is in addition to any contractual expense ratio limitation in effect for the fund and may be amended or terminated at any time without prior notice. Please see the prospectus for more details.
Given expectations that the Fed will start tightening policy in a few months, some municipal money market rates have started to increase in anticipation of a change in Fed policy. While other longer-rate markets may begin to price in expectations for a Fed liftoff, short-term rates are not likely to rise significantly until the Fed clearly signals that a short-term rate hike is imminent, given the very short-term nature of money market investing. Credit quality in California continues to strengthen as the improving economy benefits many municipal issuers. We favor higher-quality credits and have exposure to the hospital, water and sewer, and housing sectors.
The Fed has made it clear that it needs to see stronger economic data and the potential for inflation before it starts to raise short-term rates. A slight economic contraction in the first quarter has increased the uncertainty about the timing of the first interest rate increase, although a late-2015 rate hike remains a possibility. We expect that the pace of rate hikes will be measured compared with previous tightening cycles, so we have kept the portfolio's weighted average maturity somewhat below the 60-day maximum. As always, we remain committed to managing a high-quality, diversified portfolio focused on liquidity and stability of principal.