What is wrong with this reasoning? We have met the enemy, and he is us — Pogo
Hence 'rational market assessment.'
On the particular of the yield curve, the only part where some serious forecasting gets into it is IMHO the first 5 years, because all traders are short sighted. If actual sensible inflation trends over 20/30 years were priced in, long term rates should be 40% and the states would quickly rediscover the virtue of balanced budgets.
As to what this would do to the markets, well they would get even more greedy and short-termist actually, because the tail-end of future cash flows would be totally worthless. But at least the greediest would exit the home mortgage market since it's very long duration. Pierre
