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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.

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