German Bund Futures Volatility Forecast (13/06/2011)

The last week we forecasted an ulterior rise of German Bund futures whilst our profit target was set around the 125.5 – 126 area and our analysis proved very accurate and profitable. In fact, the market opened at 125.5 and plummeted to 124.9 on Wednesday but it recovered on Thursday when it touched 125.1 and closed at 125.9 on Friday.

The current volatility is 0.36% (5.7% in annual terms) and the TGARCH plot is clearly displaying a very stable and robust curve once again meaning that it is probable that the upcoming week will see a prolonged period of low price fluctuations.

Once again the market rally we just saw was mainly provoked by the great uncertainty that surrounded most of the equity markets. Consequently, many investors and traders decided to augment their exposure to this market because of its low volatility tendency and the TGARCH plot is evidently proving the point we just made.

The HyperVolatility team will probably remain flat because the 126 threshold will be breached solely if ulterior bad macroeconomics news is going to hit the market.

There might be a bit of a sideways play in the first half of the week but there could be an increase of the conditional variance that would bring the price back down in the 124.5 area.

We will wait for the volatility to signal our entry point because should the variance surpass the 0.4% level (6.3% annualised) we will place some shorts, on the other hand, if the volatility curve remains constant and the price keep fluctuating below the 126 area we will not enter the market at all.

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