Municipal debt overall moved roughly in tandem with Treasuries, whose longer-term interest rates declined (despite the Federal Reserve's tapering of its asset purchases) due to increased geopolitical risks and concerns about sluggish global economic growth. Steady demand for munis and limited supply were also favorable factors. Taxable and tax-free money market yields remained close to 0.00% as the central bank kept the fed funds target rate extremely low. Lower-quality municipals fared better than higher-quality issues in both the investment-grade and high yield markets, as investors continued to seek attractive yields.
The Tax-Exempt Money Fund returned 0.00% in the quarter compared with 0.00% for the Lipper Tax-Exempt Money Market Funds Average. For the 12 months ended September 30, 2014, the fund returned 0.01% versus 0.01% for the Lipper Tax-Exempt Money Market Funds Average. The fund's average annual total returns were 0.01%, 0.02%, and 1.06% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.52% as of its fiscal year ended February 28, 2014. The fund's seven-day simple annualized yield as of September 30, 2014, was 0.01%. Its seven-day simple annualized yield without waiver was −0.45%.* The fund's yield more closely reflects its current earnings than the total return.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance,
which cannot guarantee future results. Return and yield will vary.
An investment in money market funds is not insured or guaranteed by the FDIC
or any other government agency. Although the fund seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
*In an effort to maintain a zero or positive net yield for the fund, T. Rowe Price has voluntarily waived all or a portion of the management fee it is entitled to receive from the fund. A fee waiver has the effect of increasing the fund's net yield. The 7-day yield without waiver represents what the yield would have been if we were not waiving our management fee. This voluntary waiver is in addition to any contractual expense ratio limitation in effect for the fund and may be amended or terminated at any time without prior notice. Please see the prospectus for more details.
Lower rates continue to be driven by supply/demand imbalances dominated mostly by the overall low interest rate environment of the last six years. Low interest rates have encouraged municipalities to borrow longer to lock in favorable financing costs, thus reducing overall available supply in the short end. Maintaining a fund that adheres to a strict credit quality policy always plays a central role in portfolio management. As such, we favor highly rated credits such as hospitals, general obligations, and education revenue bonds. We continue to like high-quality issuers that can provide self-liquidity. Where self-liquidity is not always possible, we look to liquidity providers, including major money center banks, to supplement the liquidity of some municipal issuers.
Much market debate now centers on the timing and pace of the removal of Fed monetary policy accommodation. Some market participants suggest the Fed may begin raising rates within the next 12 months. Still, yields in money markets are not expected to change significantly for quite some time. The tremendous demand for short-dated, high-quality assets, such as those in which we invest, suggests that rising rates will become manifest in the money markets only a few months prior to the first actual policy tightening. With that event still at the extreme end of our investment horizon, we remain comfortable operating in the longer end of our permissible weighted average maturity range.