Work out a bond's expected return when its credit rating may migrate

Expected return on a bond over a horizon includes its yield plus the expected price effect of rating changes. For each possible end-of-horizon rating, estimate the percentage price change as −modified duration × change in spread, optionally adding a convexity term, then weight by the transition probability and sum. Because spreads widen much more on downgrades than they narrow on upgrades, and in typical transition matrices downgrades are more likely than upgrades for investment-grade bonds, expected migration often reduces return, though the effect depends on the rating, horizon and spreads. Two traps: multiplying duration by the new spread level rather than the change in spread, and forgetting to include the upgrade scenarios, which add small positive amounts.