How do you lose money in bonds?

You lose money in bonds when the prevailing interest rates go up.
 
 

Addition from Travis: you also lose money if the company defaults on its debts, as Enron and Worldcom bond holders found out. Bond issuers may pay back some or none of the money to investors if the company is wound up and proceeds from selling assets do not cover the debts. Shareholders get whatever remains after bondholders have been paid back, which often means nothing at all.