Indeed.

Hence 'rational market assessment.'

The worst problem with the discount rate (from a financial perspective), is that it is simply pulled out of the yield curve. It's a poll, like all implicit market observables. Take thousands of educated traders and observe their crowd behavior: you get idiot forecast, because the IQ of a crowd goes like the inverse of its size, regardless of the IQ distribution of its individuals.

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