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German Bund Futures Volatility Forecast (17/10/2010)

The German Bund is probably one of the most important markets to analyse in order to understand how economy is improving.

The TGARCH volatility showed a downward movement despite the sideways trading experienced in this market from the beginning of October so far.              However, an increase of  the conditional standard deviation is clearly kicking in even if, given the drop that the price lately had to 130 euro, the rise should have been much higher.

It is important to say that the last friday was the 3rd Friday of the month when futures contracts expire, hence, the drop in price is likely to be due to the  liquidation of long positions before the delivery date.

The volatility continues to be suspiciously low for such a down movement and therefore we believe that we are looking at a short-term correction before the final rally. The volatility should remain stable at 0.35% in the long run but a sharp rise due to a steep upward move is quite likely to happen

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