Credit markets could be first to rebound

Asian companies are betting that credit will offer the best returns in 2009 and, like the smart traders they are, executives in the region are busy buying back their debt with gusto. Earlier this week, Nine Dragons Paper bought back the remainder of a $300 million bond due in 2013, offering to pay 53 cents to the dollar, and other Asian borrowers retired a total of close to $2 billion in 2008.

Such trades look like good bets. Right now, bonds are paying equity-like returns for credit-like risks. According to credit analysts at Morgan Stanley, corporate bonds rated triple-B are now paying real yields of more than 9%. Compare that with long-term real returns of...