Short-term Maryland tax-free bonds edged lower in the second quarter of 2015 but held up better than taxable bonds. Munis fell with Treasuries in response to rising long-term interest rates, a strengthening economy, and concerns that the Federal Reserve-which kept short-term rates steady during the quarter-would begin raising interest rates sometime in 2015. Light issuance and solid demand for tax-free income provided support for the municipal market. Late in the quarter, bonds issued by Puerto Rico fell sharply following an acknowledgement by its governor that the commonwealth's debt was "not payable."
The Maryland Short-Term Tax-Free Bond Fund returned −0.02% in the quarter compared with −0.21% for the Lipper Short Municipal Debt Funds Average. For the 12 months ended June 30, 2015, the fund returned 0.26% versus 0.19% for the Lipper Short Municipal Debt Funds Average. The fund's average annual total returns were 0.26%, 0.75%, and 1.84% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.53% 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 investment strategy was relatively unchanged over the past three months. In general, we prefer to own higher-yielding revenue sectors versus general obligation bonds, and we target a neutral interest rate posture for your fund relative to the benchmark. We have learned to adapt and adjust our investing strategy, as the periodic supply constraints in the short-maturity Maryland market can limit our flexibility at times. We have maintained a zero allocation to bonds issued by the Commonwealth of Puerto Rico, which are triple tax-free for Marylanders but too risky, in our view.
We believe that the municipal bond market remains a high-quality market that offers good opportunities for long-term investors seeking tax-free income. While fundamentals are sound, overall, and technical support should persist, there could be hurdles later in 2015. In particular, with the Fed preparing to tighten monetary policy, we are mindful that rising rates would likely weaken the appetite for bonds with higher interest rate risk. However, with the Fed likely to act cautiously, the transition to higher rates may not be as painful as some fear. Ultimately, we believe 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.