Against my expectations, US Treasury yields have fallen sharply in recent weeks. There are two explanations for the decline: a flight to (perceived) quality as the money and credit market “crisis” has intensified and rising fears of a global “hard landing”, involving a US recession and a sharp slowdown (at least) elsewhere.

If the latter explanation were the dominant factor, one would expect similar dramatic falls in other countries, particularly open economies with high exposure to the US. Yet in one such case – Korea – yields have been soaring not plunging. Five-year Korean Treasury yields have reached their highest level since 2002. Some special factors are involved but the rise has been mainly due to a combination of stronger-than-expected economic news and competition from rising money market interest rates.

Swings in Korean yields have historically coincided with or led moves in US Treasury yields – see chart. The recent divergence suggests that Korean bond market participants do not sense a coming US recession, while the fall in US yields mainly reflects a flight to safety, which could reverse sharply if money and credit market stresses abate.

Market Vane’s measure of bullish sentiment on US Treasury bonds has risen to 81%, the highest since 2003. Similar readings historically have often preceded at least a temporary rebound in yields.