The U.S. economy continued to expand in the first quarter. We anticipate that the economic recovery will strengthen in the months ahead, as last year's fiscal policy headwinds subside and spending increases. As a result, the Federal Reserve is likely to complete its wind-down of monthly asset purchases by the end of 2014, and short-term interest rate increases should begin around the middle of 2015.The Treasury and municipal yield curves flattened during the quarter. Long-term yields declined, while money market rates remained anchored by the Fed's commitment to keep short-term interest rates low "for a considerable time" after the Fed stops purchasing securities, especially if inflation remains low. Tax-free municipal bonds produced strong gains in the first quarter and outperformed taxable bonds.
The New York Tax-Free Bond Fund returned 3.53% in the quarter compared with 3.87% for the Lipper New York Municipal Debt Funds Average. For the 12 months ended March 31, 2014, the fund returned −0.58% versus −1.82% for the Lipper New York Municipal Debt Funds Average. The fund's average annual total returns were −0.58%, 5.78%, and 4.02% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.49% as of its fiscal year ended February 28, 2013.
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We continue to underweight general obligation debt and overweight revenue-backed bonds. Although we decreased our exposure to long-term issues, we remain overweight to bonds with maturities of 15 years and longer. This reflects our conviction that the long end of the yield curve offers greater relative value. The bulk of our holdings are in credits related to New York City, where we see the most value among issuers, though we are modestly cautious as new leadership settles in. The education sector is our largest overweight followed by the hospital sector. These sectors together represent one-third of the portfolio. The fund maintains a high-quality portfolio relative to both peers and our benchmark, and we have further reduced our very minor exposure to troubled Puerto Rico bonds.
We continue to believe that munis are a high-quality asset class, with good investment opportunities for those with a long-term focus. Municipals still offer investors attractive tax-free income-particularly to people in the highest tax brackets-in what is still a very low interest rate environment. Long-term munis have attractive nominal and taxable-equivalent yields, but price declines are likely if market outflows resume and interest rates start rising sharply. We believe T. Rowe Price's strong credit research capabilities have been, and will remain, an asset for our investors. Even as interest rates return to more normal levels, bonds will remain an important asset class, and we expect to continue finding good investment opportunities for long-term oriented, income-seeking investors.