Money market rates remain closely tied to the fed funds target range of 0.00% to 0.25%. Low rates continued to suppress income for money market investors during our reporting period. However, for the first time in over six years, the prospect of higher short-term rates looms on our investment horizon. The Federal Reserve, which has kept short-term interest rates near 0% since the 2008 financial crisis, is expected to start tightening monetary policy sometime in 2015, and many observers believe the economy is strong enough for the central bank to lift rates this summer. U.S. economic growth slowed sharply in the first quarter, partly due to severe winter weather. Monthly jobs growth has remained favorable, interest rates are still very low, and last year's plunge in oil prices is keeping inflation contained and should support increased consumption.
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 March 31, 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 0.93% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.67% as of its fiscal year ended February 28, 2014. The fund's seven-day simple annualized yield as of March 31, 2015, was 0.01%. Its seven-day simple annualized yield without waiver was −0.35%.* 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.
The Fed is expected to start tightening policy in a few months, but municipal money markets have yet to price in this sentiment. The California municipal money markets yield curve, which depicts the relationship between yields and maturity dates for a set of similar securities, steepened in recent months amid persistent strong demand for high-quality, short-term California investments. While other longer rates 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 have significant exposures to the hospital, water and sewer, and housing sectors, reflecting our preference for higher-quality credits.
Maintaining a high credit quality across municipal issuers and the banks that provide liquidity support is the primary consideration for the fund. With a Fed rate liftoff within our investment horizon, we are less inclined to invest in longer-maturity securities that don't reflect our expectations regarding rates. As such, the fund's weighted average maturity will decline until we believe the yield curve correctly prices near-term rate increases. We remain committed to managing a high-quality, diversified portfolio focused on liquidity and stability of principal.