New York tax-free municipal bonds produced solid gains in the second quarter. Both the Treasury and municipal yield curves continued to flatten during the period. Long-term yields declined, while short-term rates remained anchored by the Fed's commitment to keep them low "for a considerable time" after the Fed stops purchasing securities. High-quality 30-year municipal yields fell more than the 30-year Treasury yield; by the end of June, they were lower than the 30-year U.S. government bond yield, which we have not seen for about one year. Nevertheless, long-term munis remain attractive versus taxable bonds as an alternative for fixed income investors.
The New York Tax-Free Bond Fund returned 2.91% in the quarter compared with 2.81% for the Lipper New York Municipal Debt Funds Average. For the 12 months ended June 30, 2014, the fund returned 6.55% versus 5.18% for the Lipper New York Municipal Debt Funds Average. The fund's average annual total returns were 6.55%, 5.72%, and 4.56% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.50% as of its fiscal year ended February 28, 2014.
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We favor revenue bonds, particularly New York City-based debt, relative to general obligation debt. The education sector is our largest overweight, followed by hospitals, which together represents about 30% of the portfolio. We recently eliminated what was left of our already minimal exposure to troubled Puerto Rico bonds and modestly reduced our exposure to the dedicated tax sector, while adding to our allocations to hospitals, local GOs, and toll roads. Though cautious about the potential for rate increases, we believe the most compelling values remain in longer-maturity credits, where we selectively added to our positions.
We still believe that the municipal bond market remains a high-quality market that offers good opportunities for long-term investors seeking tax-free income. Fundamentally, the credit environment for municipalities is sound and should improve with the economy. Economic growth combined with higher income and sales tax revenues are providing some support for state and local governments; and a healthier real estate market should lead to higher local property tax revenues. Taking a longer view, we remain concerned about state and local government liabilities such as pension benefits and retiree health care costs. Ultimately, we believe that our independent credit research is a great strength and will remain an asset for our investors as we navigate the current market environment. As always, we are on the lookout for attractively valued bonds issued by municipalities with good long-term fundamentals, an investment strategy that we believe will continue to serve our investors well.