Looking just now at the

US Treasury yield curve, I see 1 month rates of 4.74%, creeping up to peak at 4.97% at 4 months, then trailing down to 3.48% at 10 years, 3.81% at 20 years, and 3.67% at 30 years. And this general pattern -- high-ish immediate rate picking up for a few months and then dropping off -- has been holding for the entire month.

Frankly, this is just stupid: the bond market is stupid.

Why?

The Federal Reserve's target inflation rate is 2.00%. If we assume that they reach that (it's currently looking like we're around 3.6%) and that things look fairly stable at that level, then what are reasonable interest rates? Immediate rates might fall to around 3%: inflation plus a little sweetener.

If longer term debt is competing with cash, the longer term debt will be subject to risk that cash -- getting immediate rates -- isn't: if inflation creeps up, so should immediate rates. Now, inflation could creep down, too, but the value of longer term debt -- assuming no negative interest rates -- is capped at 100% of final payment amount. In the near term, this means there's not much upside -- not much room between $95 price and $100 final payment -- but plenty of downside. So there should be a rising yield curve for near terms ... barring some inorganic expectation (such as, legitimately, we probably have now) that rates will be falling in the near future.

In an ideal world, yields should increase as long as there is more downside than upside, but then where the magic present value of 50% of final payment amount is reached, there starts to be more upside than downside, so absent inorganic considerations, yields should fall off beyond that point.

But still, they should be consistent with an expectation of inflation stable around 2.00% (... and immediate interest rates stable over time at around 3.00%) ... which I wouldn't in a million years say the current long-term rates are. And again, there are limits: inflation is

*usually* never negative, so a 5% jump from 2% in the inflation rate is very possible, but a 5% drop is awfully unlikely.

Maybe there's some very significant inorganic considerations at work: an expectation of a brutal recession and deflation?

I think a lot of current actors in the market got hypnotized by the long span of time that inflation and interest rates remained close to zero, and regarded this as the new normal; SVB apparently did exactly that. But recent history is definitely

*not* normal: I cut my teeth using 8% interest as the default assumption, and while this was on the high side due to coming out of the inflationary periods of the late 1970s and the 1980s, still, near zero inflation and interest rates are an anomaly.

So, someone tell me why it's me and not the bond markets that is stupid.