Tax-free municipal bonds generated first-quarter gains. Munis followed Treasury bond prices higher, as longer-term interest rates declined amid slowing U.S. economic growth, low inflation, attractive yields relative to sovereign debt in developed non-U.S. countries, and a belief that the Federal Reserve will not raise short-term interest rates hastily or rapidly. In the muni market, lower-quality and longer-maturity bonds outperformed higher-quality and shorter-maturity issues, respectively, as investors continued to seek attractive yields in the ongoing low-rate environment.
The Virginia Tax-Free Bond Fund returned 1.08% in the quarter compared with 0.68% for the Lipper Virginia Municipal Debt Funds Average. For the 12 months ended March 31, 2015, the fund returned 7.05% versus 5.93% for the Lipper Virginia Municipal Debt Funds Average. The fund's average annual total returns were 7.05%, 4.95%, and 4.58% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.48% as of its fiscal year ended February 28, 2014.
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We have recently made notable additions to our holdings in the health care sector, which has typically been a good source of yield in the municipal market. More generally, we continued our emphasis on revenue sectors, favoring the relative security of specific claims on revenues versus the generic pledges of taxing power associated with general obligation bonds. Revenue sectors have also typically provided more yield.
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. 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. In our view, many states deserve high credit ratings and will be able to continue servicing their debts; however, we have longer-term concerns about significant funding shortfalls for pensions and other post-employment benefit obligations in some jurisdictions. 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. As always, we focus on finding attractively valued bonds issued by municipalities with good long-term fundamentals, which is an investment strategy that we believe will continue to serve our investors well.