[Alberta's Child]

Yes, he lost $3500 since he bought the bond. He's still earning 4%.

Right. He's willing to accept a low coupon because he's paying a discounted rate on a new bond. His old bond isn't the same as the new bond (in his mind) even if the coupon is the same . . . because he paid $10,000 for the old one but only $6,500 for the new one.

[Toddsterpatriot]

Right. He's willing to accept a low coupon because he's paying a discounted rate on a new bond.

It's only a discount if the dollar goes back up. Otherwise he's paying 6500 Euros for a $10,000 bond that pays a 4% coupon. When he converts back to Euros (at today's rate) he'll still get 6500 Euros and his 4% interest.

because he paid $10,000 for the old one but only $6,500 for the new one.

Averaging down doesn't change the coupon. 4% for the old one, 4% for the new one.