Virginia 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, a scenario 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 Virginia Tax-Free Bond Fund returned 2.76% in the quarter compared with 2.31% for the Lipper Virginia Municipal Debt Funds Average. For the 12 months ended June 30, 2014, the fund returned 6.81% versus 3.79% for the Lipper Virginia Municipal Debt Funds Average. The fund's average annual total returns were 6.81%, 5.54%, and 4.63% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.48% as of its fiscal year ended February 28, 2014.
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We continue to favor revenue bonds relative to general obligation debt, with a particular emphasis on education, hospital, and transportation credits-the revenue sectors that are most readily available in Virginia. Relative to our benchmark, we are approximately neutral duration. However, we continue to own a significant overweight to long-maturity bonds relative to our index. Virginia is a well-managed, bondholder-friendly state, which makes incremental yield difficult to source because of the scarcity of lower-quality credits. In order to obtain additional yield, we own more significant positions among longer-maturity issues.
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 property tax revenues for local governments. 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 T. Rowe Price's independent credit research is our greatest strength, and it 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.