We've noted that valuations have improved for some on-the-brink debts as of late, notably leveraged loans and some credit default swaps. The trading psychology seems to be improving in part because of the massive bets that private equity firms and hedge funds seem to be making on distressed debts. Case in point: Buyout firm Oaktree Capital Management now has raised a whopping $10.6 billion fund--the OCM Opportunities Fund VIIb--the largest-ever distressed debt fund, according to Financial News Online. Despite the bump in prices, lots of LBO debt may come under pressure if portfolio companies stumble. I do not think that they are late to the game at all. They're not making short-term bets; they expect real carnage.  

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