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German Bund Futures Volatility Forecast (24/07/2011)

German Bund futures dropped all week long and the plummet was even significant in terms of magnitude. In fact, the market opened at 129.3 on Monday, dropped to 129.2 on Tuesday, settled around 128.3 on Wednesday, plummeted to 127 on Thursday and closed at 127.5 on Friday.

The volatility is now 0.7% (11.1% annualised) and the TGARCH plot is visibly showing an upward sloping curve which has just achieved one of the highest levels, in terms of market oscillations, ever touched over the last 5 trading months.

Clearly, the decrease in German Bund futures, and the consequent explosion in its volatility, has been caused by the great performance that equity indices had the last week because we had a “text-book” like type of market: depreciating US dollar, rising S&P500, dropping German Bund and plummeting volatility.

The HyperVolatility team is bullish this market because the volatility is way too high and will probably try to mean revert. Consequently, German Bund futures should be favoured by such a low fluctuations rate and head north once again.

The medium term trend is still bullish and, despite the drop in price we saw last week, we are not aware of any significant and fundamental change in the macroeconomics environment so relevant to justify a great and continuous drop in Bund futures.

We think that the week ahead should be a sideways one, at least in the first half, whilst the price should retest the 129.5 area by Friday.

German Bund Futures Volatility Forecast (10/07/2011)

German Bund futures have been heavily affected by macroeconomics news this week and the fact that they are still trading around the 125 euro implies that many investors and traders are still concerned about the conditions of the global economy. Specifically, the market opened at 125.5 rose to 125.8 on Tuesday, closed at 126.3 on Wednesday, dropped to 126 on Thursday and settled at 127.4 on Friday.

The current volatility is 0.36% (5.7% annualised) and the TGARCH plot is now displaying a downward sloping curve which will probably end its mean reverting process around the 0.33% – 0.34% level (5.2% – 5.3% in annual terms) in the upcoming days.

The fairly stable condition of the volatility curve seems suggesting that the German Bund will head north once again and the bad macroeconomics news that have been recently released will keep many investors and traders in this market.

The HyperVolatility team remains moderately bullish German Bund futures because the volatility should remain almost constant throughout the next week whilst prices should retest the 127.5 – 128 area.

On the other hand, we remain bearish in the medium term because the volatility will not remain this low forever and a mean reverting explosion will likely twist the market in 15 – 20 days time. The more futures go up the more instable the price action becomes but the upcoming days should not see any groundbreaking change.

German Bund Futures Volatility Forecast (04/07/2011)

The last week we forecasted a drop in German Bund futures with high probability for the price action to retest the 125 area and the HyperVolatility team was right once again. We all hope you took full advantage of our quantitative based projections because the market move we just saw was indeed a great trade!!!

German Bund futures opened at 126.8, dropped to 126.1 on Tuesday, settled at 125.8 on Wednesday and remained around this level both on Thursday and Friday because 125.5 and 125.4 have been the last prices prints.

The actual volatility is 0.34% (5.3% annualised) and the TGARCH chart is manifestly showing and extremely flat volatility curve which is unmistakably trading within its equilibrium point. Also, the curve is slightly upward sloping meaning that more volatility should be expected over the next hours but its inclination seems highlighting the occurrence of a gradual increase of market fluctuation rather than a sudden explosion of the conditional variance.

The HyperVolatility team remains bearish German Bund futures because the gradual but constant augment in the conditional variance is probably going to drive the price back down in the 124 – 124.5 area.

German Bund Futures Volatility Forecast (27/06/2011)

Many times we mentioned the fact that the German Bund, along with Swiss Franc futures, is considered to be a safe haven for investors and traders who deposit their money in the German fixed income product all the time that water get rough in equity Indices: the last week this is exactly what happened.

The market opened at 126.1 dropped to 125.8 but, as soon as things started to get bad, the price rallied to 126.1 on Wednesday, touched 126.9 on Thursday and settled at 127.4 on Friday.

The current volatility is 0.40% (6.3% annualised) and the TGARCH plot is clearly displaying an upward sloping curve although the market increased but this is a fairly acceptable phenomenon for the Bund (watch the analysis “Volatility and Market Sentiment” on HyperVolatility channel for a better explanation).

Nevertheless, the fact that the variance increased does not mean that the price boost was steady and robust and that is why it is highly probable for the volatility to mean revert towards the 0.33% level (5.2% annualised) which is the equilibrium point.

The HyperVolatility team remains bearish on German Bund futures because the market has been “distorted” by the macroeconomics news. Consequently, the conditional variance should plummet accompanying a plunge of futures prices which should retest the 125 threshold by Friday because the more the market goes up the less stable it becomes.

German Bund Futures Volatility Forecast (21/06/2011)

The 126 threshold was reached and violated but the price action does not seem to be as robust as someone might think. Specifically, the price opened at 125.8 rose to 126.3 on Wednesday, topped at 126.5 on Thursday and closed at 126.2 on Friday.

The actual volatility is 0.37% (5.8% annualised) and the TGARCH plot is displaying a very stable curve which is still fluctuating within the equilibrium point which is 0.35% (5.5% in annual terms).

It is worth pointing out that most of the buying pressure has been caused by the great concerns regarding the Greek sovereign debt because many fund managers and bond traders are now using German Bund futures as a hedge against their Greece bonds exposure.

The volatility is still very low and it is quite probable that a mean reverting movement could change the situation in a matter of a few hours. Particularly, the fact that the 126 remains a very strong resistance and the fact that the conditional variance has been too low for too long are very important warning signals.

The HyperVolatility team is bearish German Bund futures because the above mentioned factors should push the price back into the 125 zone by Friday.

German Bund Futures Volatility Forecast (13/06/2011)

The last week we forecasted an ulterior rise of German Bund futures whilst our profit target was set around the 125.5 – 126 area and our analysis proved very accurate and profitable. In fact, the market opened at 125.5 and plummeted to 124.9 on Wednesday but it recovered on Thursday when it touched 125.1 and closed at 125.9 on Friday.

The current volatility is 0.36% (5.7% in annual terms) and the TGARCH plot is clearly displaying a very stable and robust curve once again meaning that it is probable that the upcoming week will see a prolonged period of low price fluctuations.

Once again the market rally we just saw was mainly provoked by the great uncertainty that surrounded most of the equity markets. Consequently, many investors and traders decided to augment their exposure to this market because of its low volatility tendency and the TGARCH plot is evidently proving the point we just made.

The HyperVolatility team will probably remain flat because the 126 threshold will be breached solely if ulterior bad macroeconomics news is going to hit the market.

There might be a bit of a sideways play in the first half of the week but there could be an increase of the conditional variance that would bring the price back down in the 124.5 area.

We will wait for the volatility to signal our entry point because should the variance surpass the 0.4% level (6.3% annualised) we will place some shorts, on the other hand, if the volatility curve remains constant and the price keep fluctuating below the 126 area we will not enter the market at all.

German Bund Futures Volatility Forecast (06/06/2011)

The last week we were expecting a lateral movement of the price action and our suspicions proved to be accurate once again since German Bund futures prices jumped up and down all week long. Particularly, the market opened at 125.7 it dropped to 125.2 on Tuesday, it rallied to 125.8 on Wednesday , it then plummeted again and touched 125.4 on Thursday but closed at 125,1 on Friday.

The current volatility is 0.36% – 0.37% (5.7% – 5.8% in annual terms) and the volatility plot is clearly showing that the curve is trading within its equilibrium point whilst the overall chart displays a fairly low rate of market fluctuations.

The rise in price has been probably caused by the uncertainty which surrounded equity indices during the past trading days but the final market drop has been accompanied by an ulterior plunge of the conditional variance which underlines an imbalance between the price action and its volatility.

On the other hand, the overall chart highlights a fairly robust volatility curve even if the leverage effect has not been respected (but we know that during market turmoil German Bunds react symmetrically to variance swings. Check out the HyperVolatility channel for a detailed video-research on this topic).

The HyperVolatility team is bullish German Bund futures because the oscillation rate, which decreased although the plunge of futures prices, is probably going to remain stable and maintain German debt securities in the 125.5 – 126 area by the next Friday.

We will monitor market variance accurately and should the market fluctuations rate augment we will step aside and wait for the market to provide a more statistically reliable entry signal.

German Bund Futures Volatility Forecast (29/05/2011)

The great uncertainty that characterised most of the equity markets pushed many investors and traders towards a safer type of investment and this resulted in increased German Bund futures prices.

The market opened at 125.1 and moved around this value for about 2 days but the final part of the week saw a sharp rise in price which at first brought German Bund futures to 125.5 euro whilst on Friday the price action remained almost unchanged; in fact, 125.59 euro was the final closing price.

The actual volatility is 0.37% – 0.38% (5.8% – 6% annualised) and the curve is now slightly upward sloping but the overall chart is displaying a fairly stable situation which mirrors the short term uptrend which brought futures prices to the 125.5 euro level.

The HyperVolatility team remains quite suspicious on this market because we do not believe that the 126 euro threshold will be surpassed, at least in the upcoming week, and a sideways movement could manifest itself since the beginning of the new week.

We will wait for the volatility to provide us with a reliable entry signal but without an increment in the conditional variance with are not going to enter the market at all.

Furthermore, there might be a possible attempt to bring the market back into the 124.5 zone but the potential down move should become more evident in the second half of the week.

German Bund Futures Volatility Forecast (23/05/2011)

The HyperVolatility team was right once again. The German Bund was expected to rise and retest the 124 euro target and effectively the market opened at 124.2 dropped at 124 on Wednesday and then closed at 124.6 euro on Friday.

The current volatility is 0.36% (5.7% annualised) and the TGARCH curve seems to have touched the equilibrium point implying that a potential short term explosion of the conditional variance is not an eventuality to opt out.

On the other hand, it is important to highlight the fact that a large part of the uptrend has been primarily caused by investors seeking some extra returns that seemed to be quite difficult to gain by investing in equity indices which extensively moved sideways throughout the previous week.

The variance is now more likely to augment than it is to drop because the volatility curve has been decreasing constantly for almost 3 consecutive weeks and a mean reverting move is statistically more probable than an ulterior plunge.

The HyperVolatility team is moderately bearish on German Bund futures because an augment in the conditional variance could easily push the market back down in the 123.5 – 124 area.

However, we will place some short position only when the volatility will start picking up and the price action will start showing some sign of weakness because the steadiness of the volatility curve could persist and keep prices in the 124 euro area: high uncertainty.

German Bund Futures Volatility Forecast (15/05/2011)

The bearish view we had the last week turned out to be right only in the first half of the week because the last 5 trading days saw a quite choppy price action which then exploded and achieved 124.4 euro on Friday.

The actual volatility is around 0.4% (6.3% in annual terms) and the chart is displaying a very stable curve which seems to have reached its equilibrium level but at this point the uncertainty could become the predominant feeling among investors.

German Bund futures went through a very rough week where most of the fluctuations have been driven by the large swings that commodities market experienced. Particularly, the sharp surge in price that brought the market to touch 124.4 euro has been probably led by many investors and traders seeking a secure place for their capital.

The HyperVolatility team is moderately bullish on the German Bund because we believe that the volatility curve is going to remain stable and therefore futures prices should keep heading north and test the resistance point placed at 124 euro.

Nevertheless, we believe that the next one will be mainly a sideways week and we will enter some longs only if the volatility is going to show the right signal because the more the market goes up the weaker the price action becomes.

The volatility has been quite low for an extended period of time and clearly such a scenario will not last forever.

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