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German Bund Futures Volatility Forecast (17/01/2011)

The Bund futures have been dropping over the last 4 months and it seems the downtrend is far from being over. The volatility has been fluctuating between 0.38% – 0.48% (6% – 7.6% annualised) over the last 40 days but the light volume and the absence of relevant transactions make that volatility measurement not of great relevance.

The current volatility is now at 0.39% (6.1% annualised) and the curve is downward sloping even if the medium term volatility is still pretty high. On the other hand, the fear surrounding the Euro zone has now been cooled down by the Portugal’s bonds auction and consequently a short term recovery (no more than 2 days) could occur in the market during this week.

Nevertheless, the weekly trend is still bearish and it is likely that the volatility will drop to 0.35% before jumping back to 0.40% again (5.5% and 6.3% respectively) making the price rising to 126 before decreasing to 124 euro.

Consequently, there are 2 strategies that could be adopted. The first one consists of placing trades intra-day in order to take advantage of market swings whilst the second one involves selling futures on Monday and buy them back on Friday afternoon.

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