You're confused about how bonds work and about opportunity costs. You're assuming that the banks bought the bonds for their face value. Banks buy bonds for the

You're confused about how bonds work and about opportunity costs. You're assuming that the banks bought the bonds for their face value. Banks buy bonds for their price, not face value. The Treasury, for example, auctions their bonds so their price might never have been their face value. People of course pay more than the face value for a bond (what you call X)! One reason is because bonds pay interest; although this can happen in other rare situations when you willingly get a negative interest. But that's not even the main problem. If you hold the bond to maturity you have an asset that pays back i% in interest. But now you can get an equally risk-free asset that pays back j% of interest. Where j is far larger than the i that your bond is giving you. You are losing money by being forced to hold this bond. When you get into a situation where you are better off selling the asset and buying a new one because of the interest rate difference, well, there you go, that's a real loss. Literally there's a course of action where your bank's balance sheet would be much bigger than where it is heading now. It's just an unrealized loss at the moment because people aren't pulling the trigger.