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Multiple market signals are leading analysts to bet that the worst credit crisis since the 1930s is easing, as debt markets slowly heal after two years of extreme upheaval. The return of private investors to markets they had shunned as recently as the first quarter this year, a surge of corporate debt issuance, and the easing of inter-bank lending rates all indicate that financial rescue measures by government are working, analysts said.

Yet while debt markets are on the road to recovery, turning around a battered economy will be a longer haul that's still fraught with danger, they said.

"The revival of corporate bond issuance and the narrowing of spreads from the peaks are good news," says Ward McCarthy, managing director with Stone & McCarthy Research Associates, in Princeton, New Jersey.

The bad news however includes "continued poor performance of many financial firms and the persistent reluctance of banks to lend," especially to homeowners, adding stress to an already strained housing market, said McCarthy.

U.S. house prices are still sliding and foreclosures rising in many places. Federal Reserve Chairman Ben Bernanke has warned the job market may struggle for another two years.

A worsening economy may yet may push corporate bond prices lower. The global credit market rally is likely overdone and due for a pull-back, the June survey of fund managers by the International Association of Credit Portfolio Managers, released on Wednesday, found.

But for now, many gauges of lending market stress are easing.

McCarthy cited the decline in banks using the Federal Reserve's emergency liquidity facilities as one sign the credit crunch is abating.

The gap between interbank lending rates and those of virtually risk free three-month U.S. Treasury bills, known as the "TED Spread", has narrowed to near 0.3 percent from about 3.5 percent at the height of fears for the global banking system in October.

Real Estate

The online real estate agency ZipRealty.com has just come out with its list of the hottest and coldest real estate markets, based on whether homes are selling for above or below the asking prices.

For the most part the "hottest" markets aren't the posh zip codes of Beverly Hills or Greenwich. Most are markets where banks are dumping foreclosed homes and bidding wars have sprouted up.

Topping the list of hottest markets is the Phoenix suburb Youngtown, where homes sold at an average of 111% of list price in the second quarter. The picture is of a four bedroom, 2,200 square foot bank-owned McMansion in Youngtown. It's got a formal living and dining room, a powder room, a large master bed and bath downstairs, a "desired location close to schools, local freeways and professional football stadium." It's listed for $107,000. You can get everything a young family needs in Youngtown, except trees apparently.

Following it on the list of hottest markets: San Pedro, Calif. (sale price as a percentage of asking price: 109%), New Haven, Conn. (107%), Oakland (105%) and Encanto, Calif. (103%), a San Diego suburb. Not the fanciest post marks.

And where are home sales coldest according to Zip? Again, not where you would expect. Atlanta (sales are at 81% of list price), Naples (81%), St. Petersburg (81%), Weston, Fla. (80%) and Eloy, Az. (80%). Number six on the cold list is a fairly posh place, Boca Raton (80%).

"As housing inventory shrinks dramatically across many California markets, we're actually seeing bidding wars again in some places," said Leslie Tyler, vice president and chief home hunter for ZipRealty. "In markets like Southern Florida that still show relatively high inventory levels, banks and sellers are accepting offers well below asking price to move homes off their books."