Because yields compress and realize gains ahead of time. Imagine someone issues a risk free 10% bond for 1 year, you buy it for 90 and it will pay 100 in a year

Because yields compress and realize gains ahead of time. Imagine someone issues a risk free 10% bond for 1 year, you buy it for 90 and it will pay 100 in a year. Next, imagine that the rate compresses to 5% within a week. The bond trades at ~95. You can sell it for a ~5% gain realized within a week. Yields have been collapsing since 1981 (Volker inflation arrest): https://www.multpl.com/10-year-treasury-rate https://www.multpl.com/10-year-treasury-rate BTW: a similar thing happened to stocks, but with far more volatility: https://www.multpl.com/shiller-pe https://www.multpl.com/shiller-pe