Tax-free municipal bonds produced gains in the first quarter of 2015 but lagged taxable bonds. Munis benefited from a rally in Treasuries as longer-term interest rates declined amid slowing U.S. economic growth, low inflation, attractive yields over non-U.S. sovereign debt in developed countries, and a belief that the Federal Reserve was in no rush to raise short-term interest. In the muni market, lower-quality, longer-maturity revenue bonds generally outperformed higher-quality, short-maturity issues and general obligation (GO) debt as investors continued to seek attractive yields in the ongoing low-rate environment.
The California Tax-Free Bond Fund returned 1.10% in the quarter compared with 1.18% for the Lipper California Municipal Debt Funds Average. For the 12 months ended March 31, 2015, the fund returned 8.07% versus 8.38% for the Lipper California Municipal Debt Funds Average. The fund's average annual total returns were 8.07%, 5.87%, and 4.93% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.50% as of its fiscal year ended February 28, 2014.
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California's strengthening economy and conservative fiscal policies under Governor Jerry Brown have greatly improved the state government's finances. Health care remains the largest sector and represents roughly one-fifth of the fund. We also maintain allocations to select air and seaport names. We continue to favor revenue bonds over GO debt, a reflection of our longer-term concerns regarding pension and health care liabilities. While we have a positive outlook for the State of California's GO debt, and the state is the fund's largest guarantor, we are underweight local GO debt due to concerns about longer-term fiscal challenges facing many localities. Credit quality in California continues to strengthen as the improving economy benefits many municipal issuers. Fitch upgraded its rating on California's GO bonds to A+ from A in February, following a similar upgrade by Standard & Poor's last November.
We continue to 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. We also have some longer-term concerns about significant funding shortfalls for pensions and other post-employment benefit obligations in some jurisdictions. History has shown that when negative headlines spark a muni sell-off, cheap valuations tend to be short-lived. We believe this resilience will endure, but it is critical to possess the fundamental research prowess to avoid the deteriorating credits at the center of any storm. Ultimately, we believe T. Rowe Price's independent credit research is our greatest strength and will remain an asset for our investors in the current market environment.