Credit Bullets

[sunman9]

Credit bullets in conjunction with long-end Treasury structures are used in a barbell strategy. Callable bonds provide a spread premium that can be valuable to an investor during periods of high interest rate volatility. Put structures will provide investors with some protection in the event that interest rates rise sharply but not if the issuer has an unexpected credit event.”
How is the last statement incorrect?
the question was to pick the correct explanation; options being Putables, Callables, Bullets.
This was the justification:
Front-end bullets (i.e., bullet structures with one-year to five-year maturities) have great appeal for investors who pursue a barbell strategy in which both the short and long end of the barbell are US Treasury securities. There are “barbellers” who use credit securities at the front or short end of the curve and Treasuries at the long end of the yield curve.
this hurts my brain lol

 

[MrSmart]

It can protect the investor in both cases.

 

[sunman9]

V putable bond = V straight + V put
if interest rates rise, value of the put should go down, ie so how does the investor get protected?
also when interest rates rise, is there anything we can say about volatility of the options itself? go down?

 

[MrSmart]

This is a put on the bond, not on interest rates.
If interest rates go up, the bond price goes down, and the put becomes more valuable. Remember that the price/yield curve of a putable is flat down the curve, and negatively convex for a callable bond up the curve.