Tax-free municipal bonds produced positive returns but trailed taxable bonds in the first quarter of 2016. Limited supply and solid demand have created a strong technical environment for munis, despite the Fed's December rate hike and the potential for additional rate increases this year. Bonds from California performed in line with the national index. Although its issuance was down about 18% from the same period last year, California was the top muni issuer in the first quarter. Nationally, year-over-year issuance has been declining due to a sharp drop in refinancing activity, while muni market inflows have been strong. Longer-maturity muni bonds outperformed shorter-maturity issues, and lower-quality securities outperformed higher-quality bonds. In terms of sector performance, revenue bonds outperformed state and local general obligations (GOs).
The California Tax-Free Bond Fund returned 1.83% in the quarter compared with 1.80% for the Lipper California Municipal Debt Funds Average. For the 12 months ended March 31, 2016, the fund returned 4.61% versus 4.34% for the Lipper California Municipal Debt Funds Average. The fund's average annual total returns were 4.61%, 6.83%, and 5.00% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.49% as of its fiscal year ended February 28, 2015.
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The portfolio is overweight revenue-backed bonds and underweight GOs (particularly local GOs) as a result of our longer-term concerns regarding pension funding. Nevertheless, we remain comfortable with the State of California as the largest guarantor in the fund, reflecting the state's solid fiscal management and resilient economy. Within the revenue sector, health care bonds, which typically offer above-average yields, were the largest allocation. Our overweight position in bonds with maturities of 15 years and longer provides the portfolio with added yield and should serve us well going forward, as we believe the Fed will remain cautious about aggressively tightening monetary policy in a low inflation and slow growth global economy.
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, investors should expect modest returns in 2016, perhaps just earning the coupon income, offset somewhat by modest declines in principal values. Munis should be less susceptible to rising rates than Treasuries given their attractive tax-equivalent yields and the steady demand for tax-exempt income. 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.