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.

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

The last week we were bearish German Bund futures but the substantial drop experienced by both equity indices and commodity markets obliged many investors and traders to protect their portfolios by going long the German based fixed income product. In fact, the market opened at 122.8 euro dropped to 112.3 but it suddenly rose to 123.7 euro on Friday.

The actual volatility is around 0.41% (6.5% annualised) but the plot is displaying a positive correlation between the price burst, we previously mentioned, and the volatility itself. Needless to say that such a “coincidence” is quite suspicious and should be carefully observed.

The TGARCH curve is now downward sloping and it would seem that the upcoming days will see a decreasing rate of market fluctuations, which would normally back a recovery of the price, but not in this case. Particularly, the augment in volatility caused by an increasing price is a hidden signal of market instability implying that during the rally the correlations amongst market orders was very close to 0 and many investors sold rather going long.

The HyperVolatility team remains bearish on German Bund futures because the plummet in the conditional variance is going to push futures prices down. Consequently, we will place some shorts because we believe that the 121 – 121.5 area will retested again before the end of the week.

German Bund Futures Volatility Forecast (02/05/2011)

The German Bund futures rose substantially the last week although our forecast suggested a shorting strategy. Particularly, the price opened at 122.5 euro dropped to 122.1 but then rallied to 122.9 on Friday.

The actual volatility is now around 0.41% (6.5% annualised) and the TGARCH plot is showing an upward sloping curve which seems highlighting the fact that more uncertainty could be expected in the upcoming days because the volatility is going to increase.

On the other hand, the volatility curve is now fluctuating within its equilibrium point and, unless there is a breakout of the equilibrium range, the situation could even remain stable with futures moving sideways or heading north again.

However, the clearly visible augment of volatility in the very last part of the chart is a warning signal because it accompanied an up move of futures prices and therefore more attention will be needed in the upcoming days.

The HyperVolatility team remains bearish on German Bund futures because should the volatility surpass the 0.48% threshold (7.6% in annual terms) we would see the price plummeting and retesting the 120.5 – 121 area.

Specifically, we believe that the rally we saw last week was only a temporary trend and that the volatility will soon increase and consequently drag the market back down again but a stable volatility plot will obligate us to step aside and wait for the next week.

German Bund Futures Volatility Forecast (24/04/2011)

German Bund futures rose as we expected and stayed into the 122 euro area for the entire week but it is important to point out that most of the movement was a reflection of the fact that prices gapped up remarkably on Monday.

Specifically, the closing price was 122.4 on Monday, whilst on the 15th of April futures closed at 121.2, during Tuesday and Wednesday futures kept decreasing and touched 121.8 but 122.2 was the closing price on Thursday.

The current volatility is now fluctuating around 0.38% (6.03% annualised) which is the mean reverting point as the chart visibly displays. The conditional variance decreased significantly during the last trading days and the fact that it has now touched the bottom could probably imply that more volatility should be expected in the upcoming hours.

In particular, an increase of the volatility curve towards the 0.45% area (7.1% in annual terms) could very easily drag prices down because the major trend irremediably remains bearish.

The next week could see a sideways movement of the market with futures fluctuating within a narrow range but a short term volatility increase should push prices back into the 121 – 121.5 zone.

The HyperVolatility team is bearish on German Bund futures and we will place some shorts as soon as a good opportunity will arise. However, a stable volatility plot or unexpected macroeconomics news would obligate us to close out our positions because there is a lot of uncertainty surrounding this market.

German Bund Futures Volatility Forecast (18/04/2011)

The last week we forecasted a bearish price movement which would have turned into a bullish market if the volatility had remained stable. Though, the volatility plot displays a sharp explosion of the conditional variance which accompanied a boost of Bund futures from 119.9 to 120.7 euro.

The actual TGARCH curve is showing a mean reverting process whose value is close to 0.38% (6.03% annualised) and it is quite likely that over the next trading days the conditional variance will keep diminishing. As a consequence, the German Bund could rise once again because the volatility curve will try to get back into the 0.34%area (5.3% in annual terms).

There might be a bit of a sideways play or even a short term drop of futures prices because the volatility will try to “adjust itself” but the overall week should manifest a further bullish price move which could touch the 121 – 122 euro by the next Friday.

The HyperVolatility team is bullish on German Bund futures and we will place some longs as soon as volatility is going to collapse but unexpected good macroeconomics news will obligate us to close out our longs.

German Bund Futures Volatility Forecast (10/04/2011)

The last week we forecasted an ulterior price drop which would have dragged Bund futures prices towards the 120.5 area and effectively so it was. Specifically, futures prices opened at 121 settled at 120.5 for a couple of days and then plummeted to 120.07 euro the last Friday.

However, we were expecting a bit of upside movement since the volatility curve was clearly downward sloping but this was not the case, although the actual volatility is around 0.3% (4.7% in annual terms).

The conditional variance will probably mean-revert towards the 0.33% – 0.35% area (5.2% – 5.5% annualised) bringing more volatility in the market and therefore pushing Bund futures to 120 euro.

Conversely, once achieved the aforementioned support futures price should settle and move sideways before getting back up again in the 120.5 – 120.7 euro zone.

The HyperVolatility team is going to place some shorts at the beginning of the week but the down movement should not be that drastic and if there will be the right opportunity (read stable volatility) we will try to place some long positions in order to profit from a short term rise of the price which should manifest itself towards the final part of the following week.

The week ahead is likely to be a choppy one, hence, an intra-day strategy could prove the most profitable to adopt.

German Bund Futures Volatility Forecast (03/04/2011)

The last week we forecasted a price drop towards the 120.5 – 121 euro and effectively so it was. German Bund futures opened at 121.8 and then sharply dropped at 121.15 euro on Friday.

However, the volatility plummeted to 0.36% (5.7% annualised) despite of what effectively happened in the market and once again the leverage effect has not been respected. Nonetheless, during our research, that is available on HyperVolatility Channel, we noticed that volatility in German Bund futures is much more reactive to price rallies than to market drops. Consequently, since the asymmetric process has not been respected and given the fact that the actual TGARCH curve is fairly close to its equilibrium level, which is around 0.33% (5.2% annualised), a potential rise in volatility could imply a recovery of the price.

The week ahead is probably going to be a choppy one but Bund futures prices should plummet to 120.5 euro and then get back up towards the 121.5 area. Therefore, we will place some shorts although we will wait for a clear sign of recovery before entering any long positions.

German Bund Futures Volatility Forecast (27/03/2011)

The staff of HyperVolatility was right once again!!! Bund futures indeed decreased as forecasted and closed at 121.8 whilst our analysis suggested a closing price around the 121.5 euro.

The volatility is now sharply diminishing and the actual value is fluctuating around 0.43% (6.8% in annual terms) but the curve is still heading south highlighting an anomaly. In fact, the violent drop in price which experienced this market, at least in the last trading session, should have provoked a rise in market fluctuations but the plot does not report any substantial change.

Consequently, the leverage effect is now inverted and therefore a dropping in volatility is now going to imply a falling market price which should test the 120.5 – 121 euro by the end of the week.

The staff of HyperVolatility is moderately bearish on German Bund futures and we believe that, although the volatility will tend to get back in the 0.38% area (6% in annual terms) the price will continue to drop over the next 5 trading days.

German Bund Futures Volatility Forecast (21/03/2011)

The market rallied to 123.7 and then retraced towards 122.7 euro by the end of the week: what a wonderful trade!!! We entered some longs since the beginning of the week and closed all our positions as soon as the market opened on the 17th.

The volatility is now at 0.58% (9.2% annualised) but the great explosion that accompanied the surge in price is a warning signal. Specifically, a downward sloping curve should be interpreted in a different way and the diminishing market volatility, at least in this case, should highlight the return of German Bund futures to a down trend.

Additionally, the TGARCH curve could touch the 0.4% area (6.3% annualised) by the end of the next week and that would imply a consistent drop in price. In particular, German Bund futures should touch the 121 – 121.5 euro by the next Friday.

The staff of HyperVolatility is bearish on this market and we will try to place some shorts as soon as the market opens but the arrival of bad news from Japan or Libya will immediately obligate us to reverse our positions.

German Bund Futures Volatility Forecast (14/03/2011)

The German Bund futures market experienced a sideways movement over the last days after the sharp gap-down-opening of the last Wednesday.

The volatility is rising and it is now close to 0.43% (6.8% in annual terms) but the TGARCH plot is still upward sloping and therefore a further augment in market fluctuations should be expected. Nevertheless, the volatility is quite close to its highest level, which is still set between 0.45% – 0.48% (7.1% – 7.6% annualised), and a mean reversion process is quite likely to happen in the upcoming days.

Furthermore, we all know that the German Bund is considered to be a safe asset class and consequently, the Japan’s earthquake and the falling equity markets will push quite a few investors to buy Bund futures in order to earn some extra returns.

The staff of HyperVolatility will look for long opportunities because the price could get back in the 123 euro zone by the end of the week whilst the volatility should drop and eventually touch 0.38% (6% annualised).

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