New York municipal 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 them sometime in 2015. Light issuance and solid demand for tax-free income provided support for the municipal market. Lower-quality and longer-maturity municipal bonds lagged higher-quality and shorter-term issues, respectively.
The New York Tax-Free Bond Fund returned −0.92% in the quarter compared with −1.09% for the Lipper New York Municipal Debt Funds Average. For the 12 months ended June 30, 2015, the fund returned 3.72% versus 3.40% for the Lipper New York Municipal Debt Funds Average. The fund's average annual total returns were 3.72%, 4.57%, and 4.19% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.49% as of its fiscal year ended February 28, 2015.
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The New York Tax-Free Bond Fund is primarily invested in high-quality issuers with an emphasis on AA and A rated bonds. In terms of sector positioning, we continue to favor revenue over general obligation bonds, reflecting our longer-term concern that many state and local governments will face fiscal challenges related to pension and health care liabilities. We like the relative security of specific claims on revenues versus the generic pledges of taxing power associated with general obligation bonds. The education, transportation, health care, and special tax sectors continue to be our largest allocations. Of note, the fund continued to hold little or no direct debt from the Commonwealth of Puerto Rico.
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.