William, you are correct that the income would offset part of the price depreciation. The example I used above was more of an instantaneous change in rates.

There's also another impact of price changes when you deal with longer period of time; and that is "rolling the curve". With the UST curve upward sloping, bonds price off of a different part of the curve as time elapses. For instance a 5yr UST purchased today at 0.70% would be a 3yr UST in two years time. If interest rates didn't move, the bond would be at a gain in two years as the 3yr UST prices at 0.36%. Thus as time elapses, the bond "rolls the curve" and prices off a new point.