T. Rowe Price Tax-Free High Yield Fund (PRFHX)
Ticker Symbol:
Fund Status:
Open to new Retail investors  /  Open to subsequent Retail investments
Fund Management
Fund Manager
  • James M. Murphy
  • Managed Fund Since: 01/19/2002
  • Joined Firm On 12/13/2000*
  • B.S. (Finance), University of Delaware; M.B.A. (Finance), Seton Hall University

*Firm refers to T. Rowe Price Associates and Affiliates
Quarterly Commentaries
as of 12/31/2014

Tax-free bonds produced good returns in the fourth quarter of 2014, outperforming taxable bonds for the year and capping a very strong year in absolute terms. Municipal debt prices rose along with long-term Treasuries, whose interest rates continued to fall. The decline occurred despite strong U.S. economic growth and the conclusion of the Federal Reserve's monthly asset purchases in October, and it was more a reflection of global macroeconomic considerations, such as general economic weakness and falling bond yields in Europe and Japan. Slowing growth in emerging countries and low U.S. inflation underscored by a sharp drop in oil prices also helped drive favorable fixed income returns.

The Tax-Free High Yield Fund returned 2.50% in the quarter compared with 1.32% for the Barclays 65% High-Grade/35% High-Yield Index and 2.08% for the Lipper High Yield Municipal Debt Funds Average. For the 12 months ended December 31, 2014, the fund returned 14.99% versus 10.71% for the Barclays 65% High-Grade/35% High-Yield Index and 14.21% for the Lipper High Yield Municipal Debt Funds Average. The fund's average annual total returns were 14.99%, 7.55%, and 5.24% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.68% as of its fiscal year ended February 28, 2014.

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.
The Tax-Free High Yield Fund charges a 2% redemption fee on shares held 90 days or less. The performance information shown does not reflect the deduction of the redemption fee; if it did, the performance would be lower.

Benchmark Definitions

Our exposure to long-term bonds and an underweight in short-term securities benefited performance in the fourth quarter of 2014. In addition, an overweight in the health care subsector of revenue-backed debt and an underweight in the special-tax area aided results. Our airline holdings also boosted the portfolio's return when the bonds rebounded following weak performance earlier. On a negative note, our premium-priced callable bonds showed relatively little movement compared with other types of securities, so as rates declined in October, our holdings in this area trimmed results to some extent.

While yields remain low, we believe that municipal bonds are a high-quality segment of the market that offers good opportunities for long-term investors seeking tax-free income. We remain concerned about the potential for rising rates and believe that short- and intermediate-term rates could continue to increase as we approach the first Fed rate hike. Our portfolios, while remaining conservative in their duration positioning, continue to underweight short-term securities in favor of longer-maturity bonds. In addition, we have a strong bias toward revenue bonds that not only provide incremental yield over state and local general obligation debt, but also are largely insulated from the pension risk that we believe will become more evident over time.

See Glossary for additional details on all data elements.