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German Bund Futures Volatility Forecast (05/10/2011)

German Bund futures opened at 136.9 on Monday, dropped to 135.9 on Tuesday, touched 135.6 on Wednesday, settled to 135.7 on Thursday and jumped back up to 136.7 on Friday.

The current volatility is 0.42% (6.6% annualised) and the TGARCH plot is now showing a downward sloping curve which is now trading close to its mean reverting point. The actual situation could lead to 2 different scenarios: the conditional variance spikes again after having touched the 0.4% support (6.3% in annual terms) or it keeps fluctuating laterally until the end of the week.

The probable scenario is half a way through the two just mentioned. In particular, the volatility is likely to increase in the very short term (read the first half of the week) whilst the second half should see a softening of market swings.

The HyperVolatility team is moderately bearish German Bund futures because, despite a probable retest of the 138.5 area in the first 3 days of the week, the price action should head south and eventually touch the 133 – 134 area by the end of the week.

Needless to say that unexpected bad news would push the price back up to 139 but, everything else being equal, we should have a diminishing in the buying pressure.

German Bund Futures Volatility Forecast (27/09/2011)

German Bund futures opened at 137.5 on Monday, moved to 137.7 on Tuesday, closed to 137.9 on Wednesday, jumped to 138.7 on Thursday and settled to 137.6 on Friday.

The actual volatility is 0.57% (9% in annual terms) but the TGARCH curve is now slightly upward sloping even though we still remain in a fairly low level and very close to the long term equilibrium point. It is worth noting that this time the increase in the conditional variance has not been caused by an augment in the buying pressure but from a sharp decline in futures prices.

The fact that the symmetric effect between price and volatility is now over means that the volatility will probably tend to augment over the next trading days and accompany an ulterior drop of German Bund futures.

The announcement of the 2-3 trillion euro package and the consequent increase of the EFSF are likely to attract speculative sellers because most of the investors will switch their attention back on risky assets.

The HyperVolatility team is moderately bearish German Bund futures because the conditional variance is likely to head north over the next trading days whilst the price should retest the 134.5 – 135 area by Friday.

On the other hand, this market is one of the last safe havens remained and any bad macroeconomics news would provoke a massive buying pressure which would lift the price to 138.5

German Bund Futures Volatility Forecast (19/09/2011)

German Bund futures opened at 138.1 on Monday, dropped to 137.5 on Tuesday, plummeted to 136.7 on Wednesday, touched 136.1 on Thursday and closed at 136.7 on Friday.

The current volatility is 0.58% (9.2% annualised) and the TGARCH plot is displaying a downward sloping curve which is trying to complete its mean reverting process towards the 0.4% – 0.45% threshold (6.3% – 7.1% in annual terms). The drop in the conditional variance is a strong signal that the buying pressure is now in a downtrend and that the next trading days could see both a softening of the oscillation rate and a slow decrease of futures prices.

German Bund futures have been heavily bought by investors seeking protection against equity markets storms but an ulterior plunge in the volatility curve is a strong signal that the buying pressure is now diminishing (for a more precise explanation of the relationship between German Bund futures and volatility please watch our video-research on our HyperVolatility Channel).

The HyperVolatility team is moderately bearish German Bund even if we reckon that a sharp drop in futures prices is quite unlikely. The market will probably retest the 135 area by Friday but a sideways movement should dominate the upcoming trading hours.

Some short term opportunities could come during the FOMC announcement as many traders will attempt to buy Bund futures in order to avoid violent price shocks in risky markets.

German Bund Futures Volatility Forecast (06/09/2011)

German Bund futures opened at 134.3 on Monday, jumped to 135.1 on Tuesday, retested the 134.4 level on Wednesday, achieved 135.5 on Thursday and closed at 136.8 on Friday.

The current volatility is 0.6% (9.5% in annual terms) and the TGARCH chart is displaying a curve which is now insistently upward sloping implying that the buying pressure is far from being over and likely to continue over the next trading hours. Should the situation worsen it would not be surprising to see the volatility retest the 1% level (15.8% annualised) by Friday.

The fragile situation of the global economy and the decreased rate of growth of the American market are factors which are heavily affecting investors’ feelings. Furthermore, the uncertainty about Obama ‘s speech is going to act as a catalyst meaning that a lot of traders will buy German Bund futures to limit market risk.

The HyperVolatility team is bullish this market because the increase in volatility will accompany a  higher buying pressure which will eventually bring the price action to test new all-time highs around the 138.5 – 139 threshold.

Once again, Obama’s speech on Thursday will have a significant impact on this market should any monetary/fiscal stimulus package be announced.

German Bund Futures Volatility Forecast (30/08/2011)

German Bund futures opened at 135.3 on Monday, settled at 135 on Tuesday, plummeted to 134.2 on Wednesday, jumped back up to 134.8 on Thursday and closed at 135.2 on Friday.

The volatility is now 0.44% (6.9% annualised) and the TGARCH plot is now showing a slightly downward sloping curve which should keep plummeting over the next hours and settle around the long term equilibrium point which is around the 0.35% – 0.4% area ( 5.5% – 6.3% in annual terms). The positive correlation between the German Bund futures price and its volatility during market turmoil is a well known fact, hence, a softening of the volatility should be interpreted as a decrease in the buying pressure which pushed the price to make unprecedented new highs.

The HyperVolatility team is bearish German Bund futures because the conditional variance should settle around the long term equilibrium point whilst futures prices should decrease and eventually retest the 133.5 area by Friday.

It is comes without saying that bad macroeconomics news will keep futures prices well above the 135 level and some worse-than-expected reading, particularly NFP or Manufacturing Index, would push the price action towards the 136 threshold.

German Bund Futures Volatility Forecast (22/08/2011)

The worst scenario profit target we gave you one week ago, that is 136, proved to be the right one. The buying pressure dramatically increased soon after Germany and France prime ministers finished their public speech whilst prices went through the roof after the US manufacturing data were released.

German Bund futures opened at 132.7 on Monday, rose to 133.4 on Tuesday, closed above 134 on Wednesday, jumped to 135.5 on Thursday and closed at 135.5 on Friday.

The actual volatility is 0.8% (12.6% in annual terms) and the TGARCH plot is evidently displaying an upward sloping curve which should increment its value over the next trading days. However, German Bund futures volatility responds inversely to equity market fluctuations (for a more detailed explanation please watch the HyperVolatility Channel on YouTube) meaning that an increase in the volatility of German’s fixed income product is highlighting a very high buying pressure that is likely to continue over the next hours.

The HyperVolatility team remains bullish on this market because the positive correlation between German Bund futures prices and volatility it is a typical process observed during market turmoil and it should not be interpreted as a warning signal. We expect the market to keep moving higher and eventually achieve the 136.5 area by Friday but short term retracements or a sideways movement of the price action, particularly in the first half of the week, are not eventualities to opt out.

Clearly, good news from Germany and US would change the overall picture and drag down the price in the 132 area but further bad figures (Home Sales, Initial Jobless Claims, GDP, etc) would literally drive the price towards the 137 area by Friday.

German Bund Futures Volatility Forecast (14/08/2011)

The HyperVolatility team forecasted a further increase in the German fixed income bond market and our projections proved accurate and profitable once again although the 135 target point was only brushed by but never touched nor violated. German Bund futures opened at 133.49 on Monday, plummeted to 133.22 on Tuesday, jumped to 134.4 on Wednesday, dropped back to 133.25 on Thursday and closed at 133.04 on Friday.

The volatility is now 0.78% (12.3% annualised) and the TGARCH plot is obviously displaying a volatility curve which is “trying” to complete its mean revert process in order to settle around the long term balance point which, for the German Bund, is around the 0.4% threshold (6.3% in annual terms).

Additionally, the intervention of the ECB, which desperately bought up Italian and Spanish bonds on the secondary market in order to calm down investors and decrease the yields which were dangerously close to the 7% break point, managed to throw some water on the fire, at least in the short term.

The HyperVolatility team is bearish German Bund futures because the inverse leverage effect, and therefore the positive correlation between the price action and its volatility, will accompany a down move of the price itself. As a consequence, futures should get back to 130 by Friday and eventually break through this level.

Like the Swiss Franc, the German Bund has an inverted reaction to bad macroeconomics news. Therefore, should the market be hit with further downgrading and/or bearish figures the price could jump back up and touch the 136 – 137 zone.

German Bund Futures Volatility Forecast (08/08/2011)

German Bund futures opened at 131.2 on Monday and remained at that level on Tuesday too but it plummeted to 131.7 on Wednesday, jumped to 133.2 on Thursday and closed to 130.8 on Friday.

The volatility is now 0.81% (12.8% in annual terms) and the TGARCH plot is showing an upward sloping curve which does not display any retracement and that is signalling an ulterior augment of the oscillation rate in the upcoming trading days.

As we proved in one of our quant research (which can be watched on our YouTube channel: HyperVolatility Channel) German Bund futures volatility respond inversely to bad macroeconomics news more than any other “safe assets” and this explains the great burst in the conditional variance last week.

The fact that the ECB is now buying Spanish and Italian debt securities is not going to change the fact that the global economy is slowing down, investors are literally freaking out and therefore the high volatility should be interpreted as a very bullish signal.

The HyperVolatility team is bullish German Bund futures because the explosion in volatility is, in this case, a clear signal that the buying pressure is particularly intense and likely to continue. Hence, we believe that futures prices will head north once again and eventually retest the 135 area by Friday.

However, an ulterior bad macroeconomics announcement could easily send German Bund futures prices through the roof (read 136 – 137) and smash down its already low yields favouring a decrease in Germany’s borrowing costs.

German Bund Futures Volatility Forecast (02/08/2011)

German Bund futures opened at 128 on Monday, touched 128.4 on Tuesday, rose to 129.2 on Wednesday, achieved 129.5 on Thursday and closed at 130.6 on Friday.

The actual volatility is 0.38% (6% annualised) and the TGARCH plot is manifestly showing a downward sloping curve which seems to have completed its mean reverting process and it is now ready to settle around its long term equilibrium point. Consequently, the chart seems to suggest that the upcoming days will not see an extreme movement of the market but a constant and slow price action.

German Bund futures are still in an uptrend, however, for the market to continue prices should break through the 130 resistance points which extraordinarily strong. In fact, the first time this level was surpassed was during the credit crunch and it took 8 months (from January 2010 until August 2010) to “demolish” the aforementioned threshold.

The HyperVolatility team is bearish German Bund futures because the volatility is very likely to augment in the short term and the 130 resistance should hold, at least in the short term. We are expecting the price action to retrace and eventually touch the 127.5 – 128 area by Friday, macroeconomics news permitting.

On the other hand, bad news regarding the health of the global economy would probably see German Bund futures rally and touch the 132.5 level.

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.

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