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German Bund Futures Volatility Forecast (10/07/2011)

German Bund futures have been heavily affected by macroeconomics news this week and the fact that they are still trading around the 125 euro implies that many investors and traders are still concerned about the conditions of the global economy. Specifically, the market opened at 125.5 rose to 125.8 on Tuesday, closed at 126.3 on Wednesday, dropped to 126 on Thursday and settled at 127.4 on Friday.

The current volatility is 0.36% (5.7% annualised) and the TGARCH plot is now displaying a downward sloping curve which will probably end its mean reverting process around the 0.33% – 0.34% level (5.2% – 5.3% in annual terms) in the upcoming days.

The fairly stable condition of the volatility curve seems suggesting that the German Bund will head north once again and the bad macroeconomics news that have been recently released will keep many investors and traders in this market.

The HyperVolatility team remains moderately bullish German Bund futures because the volatility should remain almost constant throughout the next week whilst prices should retest the 127.5 – 128 area.

On the other hand, we remain bearish in the medium term because the volatility will not remain this low forever and a mean reverting explosion will likely twist the market in 15 – 20 days time. The more futures go up the more instable the price action becomes but the upcoming days should not see any groundbreaking change.

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