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The bonds (largely mortgage-backed securities) did not decline in value. If they were held to maturity, they would pay full rate.

The issue is that the bonds can’t be sold now for anything like npv, because nearly risk-feee government issued bonds pay 3-4x what these bonds will.

That makes them… discounted

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No, that the bond still pays out at the end of it’s term doesn’t mean it’s value is the same in a rising inflation world.

The actual value of the bond went down, because the expected value of the payout is less, even though the actual amount of dollars returned at maturity is the same.

Which is why the market price for it went down.

You lose money the instant rates go up. It doesn't matter whether you sell them or not. The only way to gain it back is for rates to go back down. Holding to maturity is irrelevant.

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