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.

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