Debt Worm Turns for a Day

"There is still a lot more to recover," says Brian Hessel, managing partner at Stonegate Capital. But, Citadel's "vote of confidence" is meaningful in that it takes some of the potential marked-down supply out of the equation, he adds.

"People are circling the wagons looking for opportunities, and the market has sold off to levels where it makes sense to redeploy capital again," Hessel says, adding there's plenty of additional money on the sidelines.

Christopher Vincent, head of fixed income at William Blair & Co., says his firm was "nibbling" Friday in the high-grade credit markets at bonds in the battered financial and industrials space.

Goldman Sachs(GS Quote), like Citadel, may be nibbling out there in the credit markets as well. The firm increased the size of a corporate credit fund that was originally intended to be $12 billion to $20 billion, according to reports.

Indeed, the Goldman fund could be one of many hedge funds out there willing to buy some of the banks' loans and bridge loans at bargain basement prices.

It's no secret that with risk premiums running for so long at such low levels, many hedge funds have had trouble meeting their performance targets and have chased yield in dangerous places, like subprime mortgages.

Goldman was on a roll Monday as news also came out that the investment bank's private-equity unit will expand its investment in middle-market companies between $500 million and $2 billion through a unit called GS Direct.