Credit Investors Snap Up Bonds Backed by Unusual Collateral

As investors seeking safer bets clamor for asset-backed securities, Wall Street is turning to increasingly unconventional debt to package into the bonds, including art loans and internet addresses.

Esoteric ABS deals — backed by collateral other than student, auto, credit card and equipment loans — have risen to about 31% of the ABS market from 9% over the last decade, according to Barclays Plc. Collateral pools have also become more diversified with investors seeking out novel structures to earn excess returns as ABS spreads tighten, dropping more than 30 basis points since November. Meanwhile, interest-rates are expected to stay higher-for-longer, which means the benefits to borrowers of waiting to come to market have dissipated.