Explain credit strategies that start from macro and sector views (top-down)

Top-down credit investors begin with views on growth, the credit cycle, default rates, interest rates and policy, and decide how much credit exposure to hold overall and how to split it across quality tiers, sectors, regions and currencies. Early in a recovery spreads tend to tighten and lower-quality credit does best; late in the cycle and in recession spreads widen and higher quality is preferred. Overall exposure can be measured with spread duration, or better, when comparing rating tiers, with duration times spread, which captures the larger spread moves of wider-spread bonds. Positions are taken through cash bonds, CDS indexes and credit ETFs. The trap is ignoring differences in spread volatility between tiers when sizing a shift in quality.