Break down and interpret a model that decomposes the return on a bond portfolio

Expected return is built from components: yield income (coupon ÷ price), plus rolldown return from the bond ageing along a sloped curve (together, the rolling yield), plus the expected price change from yield moves, −D × Δy + ½ × C × (Δy)², minus expected credit losses, plus or minus currency gains or losses. Example: yield income 4.0%, rolldown 0.5%, duration 6, convexity 50, yields rise 0.5 percentage points, credit losses 0.3%: price effect ≈ −2.94%, so expected return ≈ 1.26%. Traps: forgetting that rolldown assumes an unchanged curve, and that the model ignores reinvestment income and taxes over the horizon.