Real estate-backed debt top performer in 2013: S&P

December 26, 2013 10:05AM

Debt tied to real estate development, also known as dirt bonds, is set to be the top performer in the $3.7 trillion state and local bond market in 2013, as the rebounding housing market ushers in greater investor returns.

Indeed, dirt bonds earned 1.1 percent through Dec. 23, while all municipal debt lost 2.6 percent, according to data from Standard & Poor’s. The housing market’s rebound following the longest recession since the Great Depression was the biggest driver of the strong performance, according to John Miller, co-head of fixed income at Chicago-based Nuveen Asset Management.

“These things all help the performance of the underlying credit fundamentals of land-secured bonds,” Miller told Bloomberg News. Land-backed debt is sold to help fund residential development construction and investors are repaid with assessment fees charged to homeowners, according to Bloomberg News.

The dirt bond market is still affected by a “taint” from the Florida housing market, Miller said, which has had the most new foreclosure filings in the country in 11 of the last 13 months, according to data from RealtyTrac seen by Bloomberg. [Bloomberg News]Hiten Samtani