Mean reversion causes volatility in debt markets

From the Economist:

...if the spread between the yield on an asset and the cost of funding is 0.5% a year, then the annual return will be 10% if the manager borrows 20 times his initial capital.

However, ... credit spreads tend to revert to the mean: in other words, when they are high, they are likely to fall and when they are low, they are likely to rise. As a result, the returns from the asset class are very volatile.

When spreads are low, investors will receive a low income and face the risk of capital loss when spreads widen (and prices fall). When spreads are high, they will get a good immediate income and the prospect of capital gain as spreads fall (and prices rise).