The answer goes to the heart of how investment gains, or returns, are calculated for bonds.
How this worked. If, for example, a retiree were to go directly to the U.S. government and buy a fresh 10-year Treasury bond that is paying 2 percent interest and held it for the full 10 years, the retiree would get paid the 2 percent interest promised each year. And that's all.
If the retiree had a brokerage statement for 2011, the 10-year Treasury bond bought early in the year would show as being worth about 16 percent more at the end of 2011. But it would not have been a gain for the investor without selling the bond at the higher price.
Some investors do buy and sell bonds without waiting for them to mature. And if a person bought a 10-year Treasury bond at the start of the 2011 and sold it at the end of the year, that person ended up with about a 16 percent total return after combining the appreciation on the price of the bond and the interest collected during the year.
Likewise, if the person did not buy individual bonds but put money into a bond mutual fund that selected U.S. Treasury bonds, he or she would have seen at the end of 2011 that it had probably gained more than 14 percent. If at the point, the person decided to remove the money from the fund, he or she actually would have captured the 14 percent gain. Money left in the fund could have gained or declined.
How this was different. What happened in 2011 was fairly unusual.
