WASHINGTON -- The wave of selling that rocked the bond market last week on fears that Saudi Arabia had opted to support a $3 per barrel increase in oil prices made for good news copy, but it was out of whack with some hard economic truth. The price of West Texas intermediate crude jumped $1 to $22 in reaction, and the yield on the Treasury long bond shot from 7.80% to 7.90%. The mild hysteria that hit the market was reflected in a Washington Post report that said traders were talking about U.S. inflation jumping by a full percentage point.

Cooler heads knew better and did not rush to the fire escape.

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