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Oil's Link to Credit Turned on Head by Easy Cash: Analysis 

June 2, 2017

Simon Ballard, Bloomberg Quint

"The relationship between oil prices and corporate-credit spreads has loosened over recent quarters as easy monetary policy keeps risk-asset spreads anchored, writes Bloomberg strategist Simon Ballard. But energy market price performance has been constrained by weakening global growth assumptions, raising the question of whether the correlation will continue to fade or if one of the two data series will fall back into line with the historic trend.

An analysis of the 120-day correlation between WTI crude oil and European high yield credit shows that the negative coefficient has been steadily eroding over the past year. Since June 2016, the correlation has risen back toward zero and now sits at its least-correlated level in around two years. The last time the relationship between oil and corporate credit was in positive territory was between the fourth quarter of 2014 and the first three months of 2015, when spreads recovered from Greece debt and German macro uncertainties, and the oil price weakened with deteriorating global economic growth assumptions. "

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