Tax-free municipal bonds produced modest positive returns in the first quarter of 2013, marginally outperforming taxable bonds. Long-term municipal yields rose with long-term Treasury yields during the quarter amid favorable economic data, improved U.S. fiscal policy certainty, and increased investor demand for equities and other higher-risk assets. Shorter-term municipal securities narrowly outperformed longer-term issues. Lower-quality issues offered a yield advantage, outpacing investment-grade issues, as credit spreads continued to tighten.
The New York Tax-Free Bond Fund returned 0.17% in the quarter compared with 0.24% for the Lipper New York Municipal Debt Funds Average. For the 12 months ended March 31, 2013, the fund returned 6.19% versus 5.62% for the Lipper New York Municipal Debt Funds Average. The fund's average annual total returns were 6.19%, 5.77%, and 4.64% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.51% as of its fiscal year ended February 29, 2012.
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.
We favor revenue-backed securities over general obligation bonds and maintain a significant overweight versus our benchmark to the education and hospital sectors. Because we believe spreads still have room to tighten, we remain underweight higher-quality credits (AAA and AA) and overweight lower-quality credits (A, BBB), where our fundamental credit research allows us to find attractive risk-adjusted yields. The portfolio remains overweight in longer-term bonds, which allows us to capture some additional yield.
While we are pleased with the tremendous performance of municipal bonds over the past two years, we believe that returns in the period ahead will moderate. We expect the credit and economic environment for municipalities to remain challenging, with yields unlikely to fall significantly from current levels. Modest economic growth and improving income and sales tax revenues are providing some support for state and local governments. However, cutbacks in state support for municipalities, combined with persistent downward pressure on property tax revenues, could keep local municipal issuers vulnerable. We continue to conduct our own in-depth research and assign our own credit ratings before making investment decisions.