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.

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