Credit Markets Rebound as Confidence Surges At GMAC, Citadel By Hamish Risk and Kabir Chibber July 31 (Bloomberg) -- The risk of owning corporate bonds dropped by the most in at least three years after home lender GMAC LLC said subprime mortgage losses narrowed and Citadel Investment Group LLC bought the assets of a failed hedge fund. Credit-default swaps on 10 million euros ($13.8 million) of debt included in the iTraxx Crossover Series 7 Index of 50 European companies tumbled to 388,000 euros from as high as 507,000 euros yesterday, according to JPMorgan Chase & Co. The benchmark CDX North American Investment-Grade Index of credit- default swaps fell for a second day. ``The Citadel deal shows there's money out there waiting to be invested,'' said Gunnar Stangl, the Frankfurt-based head of index and bond strategy at Dresdner Kleinwort, a unit of Allianz SE, Europe's biggest insurer. ``It has been too much, too fast in the credit markets.'' Investor confidence improved after GMAC, the lender formerly owned by General Motors Corp., yesterday reported a second-quarter profit, after losing money in the first three months of the year because of bad home loans. Citadel Investment Group LLC bought securities held by Sowood Capital Management LP, the largest hedge-fund manager to be crippled by the selloff in credit markets. The Crossover index fell as much as 75,000 euros today, the biggest decline since it started trading in 2004. The CDX Investment-Grade Index fell $9,000 to $63,000, Deutsche Bank AG prices show. The CDX traded at as high as $103,250 yesterday. Investors use credit-default swaps to speculate on the ability of companies to repay debt. A decrease indicates improving perceptions of credit quality. High-Risk Loans GMAC earned $293 million in the second quarter, after losing $305 million in the first three months. GM sold a 51 percent interest in Detroit-based GMAC last year to a group led by Cerberus Capital Management LP. Citadel Investment, the $14 billion Chicago-based hedge fund run by Kenneth Griffin, bought most of the assets of Sowood Capital. Sowood, based in Boston, plans to wind down the two funds, founder Jeff Larson told investors in a letter yesterday. Sowood sought a buyer when it couldn't meet lenders' demands for more collateral. Terms of the sale weren't disclosed. Sowood lost 50 percent in July, or about $1.5 billion, the biggest hedge-fund manager to collapse in the meltdown of the corporate bond and loan markets. Growing confidence triggered a jump in the iTraxx LevX Index of credit-default swaps on high-yield, high-risk loans. The index, which references 35 European companies, rose by a record to 95.5 from 93.5, according to Deutsche Bank AG, after trading as low as 92.5 yesterday.