Looks like the absolute panic is over in the credit space. IG energy and HY spreads are tightening even as the oil price continues to collapse. Decoupling is on.
There is a relationship between oil and the credit worthiness of energy companies, and without doubt HY energy is still in the doghouse: as it should be. But currencies are big indicators of risk appetite and things are looking better for credit based on FX.
Dollar strength kicks the crud out of commodities. Always has. Too much dollar strength kicks the crud out of everything because it signals that levered money (leverage = short USD) is forced out of the market. Yen strength signals repatriation out of non-yen carry and into yen.
The yen is giving credit some relief. The dollar isn’t giving crude any break at all. The markets are saying “all good” for now. But DXY rallied again today. Credit doesn’t seem to care much, given the value offered. HY and EM showed serious tightening. That is, except for CEEMEA which = energy prices + sanctions and Asia ex-Japan which = China slow-down and an epic credit bubble overhanging everything.