In the secondary market, things can change in an instant. One minute, its hedge funds bailing out banks. The next, it’s banks bailing out hedge funds. Bloomberg takes a look Wednesday at — surprise! — a flickering pulse in the battered CDO market:

Babson Capital Management LLC took over a $680 million CDO from Hartford Financial Services Group Inc. this month, adding to the $22 billion of the securities it oversees. Deutsche Asset Management replaced London-based Brevan Howard Asset Management LLP on a CDO in April. Blackstone Group LP, the largest buyout fund operator, sold three CDOs totaling $1.3 billion in April. The combination of takeovers and new funds signals a new stage of the global credit crisis as CDO managers vie for more than $2 billion in annual fees generated by the market. One in five managers of the funds that pool bonds, loans and other assets face “financial stress” or ruin, according to Fitch Ratings. “We absolutely believe the market will come back,” said Matthew Natcharian, 39, managing director for structured products at Springfield, Massachusetts-based Babson, a unit of MassMutual Financial Group. “We’re actively looking for opportunities,” said Natcharian, whose firm also invests in private equity and emerging-market bonds.

And here we thought that Wall Street had lost its appetite for risk. Silly us.