In January 2022, when yields on US 10-year Treasury bonds were still roughly 1% and those on German Bunds were -0.5%, I warned that inflation would be bad for both stocks and bonds. Higher inflation would lead to higher bond yields, which in turn would hurt stocks as the discount factor for dividends rose. But, at the same time, higher yields on “safe” bonds would imply a fall in their price, too, owing to the inverse relationship between yields and bond prices.

This basic principle – known as “duration risk” – seems to have been lost on many bankers, fixed-income investors, and bank regulators. As r...