OID is what your client has, if that's what is reported on the 1099.  That represents the accrued interest related to the period of his holding during the year based on the original issuance.

When the bonds are sold in the secondary market at a deeper discount, at a price that's lower than the original issue price plus the OID accrued to date, the buyer would essentially be receiving more interest than the OID upon redemption; that market-driven component is what you call market discount.  Since it has the same character as OID, it is treated the same way as interest income.

What your client has is a paper loss.  Just like someone holding stocks, you can't recognize a loss until that loss is realized (forget about MTM for now).  The sale of the discounted bonds would then be a separately reportable transaction.