Tax-free 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. Late in the quarter, bonds issued by Puerto Rico, a major muni issuer, fell sharply following an acknowledgement by its governor that the commonwealth's debt was "not payable."
The Summit Municipal Intermediate Fund returned −0.86% in the quarter compared with −0.66% for the Barclays Intermediate Competitive (1−17 yr maturity) Bond Index and −0.85% for the Lipper Intermediate Municipal Debt Funds Average. For the 12 months ended June 30, 2015, the fund returned 2.27% versus 2.22% for the Barclays Intermediate Competitive (1−17 yr maturity) Bond Index and 1.26% for the Lipper Intermediate Municipal Debt Funds Average. The fund's average annual total returns were 2.27%, 3.89%, and 4.08% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.50% as of its fiscal year ended October 31, 2014.
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We prefer revenue bonds in general because they offer the relative security of specific claims on revenues versus the generic pledges of taxing power associated with general obligation bonds. Our security selection in revenue bonds, however, weighed on relative returns, particularly in the transportation and special tax subsectors. We had modest overweight exposure to the 10- to 20-year range of the yield curve, which hurt our relative performance. The fund's duration, which is a measure of sensitivity to interest rate changes, was slightly longer than the benchmark's duration. This positioning detracted from relative returns as yields increased. As always, we focus on finding attractively valued bonds issued by municipalities with good long-term fundamentals.
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.