U.S. bonds were mostly flat in the first quarter as longer-term Treasury yields increased. The Federal Reserve kept short-term interest rates low and persisted with its program of purchasing $85 billion in Treasury and mortgage-backed securities every month. Municipal bonds generated positive returns, with long-term high yield tax-free securities outperforming short-term and high-quality issues. Revenue bonds outperformed local and state general obligations.
The Tax-Free Income Fund returned 0.46% in the quarter compared with 0.29% for the Barclays Municipal Bond Index and 0.33% for the Lipper General & Insured Municipal Debt Funds Average. For the 12 months ended March 31, 2013, the fund returned 6.43% versus 5.25% for the Barclays Municipal Bond Index and 6.31% for the Lipper General & Insured Municipal Debt Funds Average. The fund's average annual total returns were 6.43%, 6.10%, and 4.93% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.52% as of its fiscal year ended February 29, 2012.
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Our positioning along the yield curve during the quarter was fairly consistent, as we were overweight long-term bonds and underweight shorter maturities. The strategy benefited performance thanks to stronger returns from longer-term securities. We currently maintain an underweight in bonds maturing in 10 to 15 years. While an overweight in longer maturities can be vulnerable to rising rates, our holdings are defensive in nature, dominated by callable premium coupon structures that offer greater protections. This is in line with our outlook for muted U.S. economic growth and for continuing strong investor demand for tax-exempt bonds. On a negative note, our shorter-term holdings lagged.
In this low-rate environment, long-term bonds and lower-rated sectors still represent reasonable value relative to taxable fixed income alternatives. While we are comforted somewhat by Federal Reserve assurances that interest rate hikes are not imminent, and by the demonstrated ability of states to balance their budgets in tough times, we are mindful that municipal yields are at or near historic lows and there is the potential for losses if rates rise in response to stronger economic growth or inflation. Although we expect rates to stay range-bound in the period ahead, we are careful with any investment shift that might materially increase our portfolio's interest rate sensitivity.