Investment-grade bonds recorded a modest overall gain in the quarter. Treasury yields across most maturities fell during the first quarter due in part to risk aversion resulting from Russia's annexation of Crimea from Ukraine and concerns about the economic health of some emerging markets. Longer-maturity Treasury bonds experienced the most significant price increases and yield declines. Some weak U.S. economic data also helped boost Treasury prices. At the other end of the risk spectrum, emerging markets debt performed well, rebounding sharply from a sell-off in January.
The New Income Fund returned 2.12% in the quarter compared with 1.84% for the Barclays U.S. Aggregate Bond Index and 1.97% for the Lipper Core Bond Funds Average. For the 12 months ended March 31, 2014, the fund returned −0.23% versus −0.10% for the Barclays U.S. Aggregate Bond Index and 0.01% for the Lipper Core Bond Funds Average. The fund's average annual total returns were −0.23%, 5.99%, and 4.77% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.62% as of its fiscal year ended May 31, 2013.
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We reduced overweight allocation to agency mortgage-backed securities (MBS) during the quarter. The yield premium over Treasuries has fallen significantly, making MBS valuations less attractive, particularly given our expectations for the eventual end of the Federal Reserve's asset purchase program later this year. We also trimmed the portfolio's modest out-of-benchmark exposure to tax-free municipal bonds as valuations have become less compelling. Conversely, we added slightly to Treasury inflation protected securities (TIPS), a sector that is also not held in the benchmark. TIPS performed very poorly in 2013, and we feel that the market is not pricing in the upside risk to inflation from nascent wage pressures.
Although interest rates are likely to resume their ascent over the longer term and pressure bond prices, we see attractive relative value in several areas of the market, such as select commercial mortgage- and asset-backed securities. We also see the opportunity to add value for our shareholders through diligent fundamental credit analysis. For example, we see interesting opportunities among investment-grade bonds issued by cable and telecommunications firms to capitalize on the recent consolidation trend. Some emerging markets debt denominated in U.S. dollars is particularly compelling, as emerging markets bonds have sold off to levels that don't reflect their intrinsic value.