Explain how CDS can be used to manage credit exposure and to take views on moves in the level or shape of the credit curve

CDS let investors manage credit exposure without trading the underlying bonds or loans. A lender that cannot sell a loan can buy protection to hedge it; an investor bullish on credit can sell protection to take exposure. Views on the level of spreads are expressed by buying protection if spreads are expected to widen and selling if they are expected to narrow. Views on the shape use curve trades: to profit from steepening, sell short-dated protection and buy long-dated protection, sizing notionals so the durations offset; reverse the legs for flattening. Profit on each leg ≈ notional × duration × change in spread. Buying protection is a short credit position.