Fixed Income Question

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Zoey

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From the PM section of the 2016 CFAI mock, there is a question in which they ask about which statement is correct. Below is one of the statements they say is INCORRECT. Why is this incorrect?
“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.”
To me it seems like it is correct as if interest rates rise and the price of the bond falls, you can put it back to the issuer, so there is your protection. Regarding the second part, if the issuer has an unexpected credit event and defaults, they won’t be able to meet the put obligation, so there is the lack of protection.
Any reason why I’m wrong here?
 
I think the issue has been discussed earlier.
Not all credit events mean default.
 
I got burned by this question as well. I think that the statement about Bullets is just “more correct” than the one about Putables.
 
From now I thought wrongly the question. I thought that if a issuer experiance credit event, then credit spread is up so bond price down, then to exercise put option protect buyer against downside of bond. Former case is related to interest rate risk latter case is related to credit spread risk..
 
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”
It potentially also provide protection when credit event happens, maybe yes if not default or bankruptcy.
 
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