(Bloomberg) -- Municipal debt tied to real-estate development is set to be the best-performing part of the $3.7 trillion state and local-bond market this year as an improving housing market boosts the securities’ earnings.

Land-backed debt, called dirt bonds, earned 1.1 percent through Dec. 23, more than any other area of the market, while all munis lost 2.6 percent, according to Standard & Poor’s data. The obligations are the riskiest part of the muni market, accounting for almost half of non-payment defaults, according to Concord, Massachusetts-based Municipal Market Advisors. The segment also beat the market in 2012.

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