German Bund Futures Volatility Forecast (19/09/2011)

German Bund futures opened at 138.1 on Monday, dropped to 137.5 on Tuesday, plummeted to 136.7 on Wednesday, touched 136.1 on Thursday and closed at 136.7 on Friday.

The current volatility is 0.58% (9.2% annualised) and the TGARCH plot is displaying a downward sloping curve which is trying to complete its mean reverting process towards the 0.4% – 0.45% threshold (6.3% – 7.1% in annual terms). The drop in the conditional variance is a strong signal that the buying pressure is now in a downtrend and that the next trading days could see both a softening of the oscillation rate and a slow decrease of futures prices.

German Bund futures have been heavily bought by investors seeking protection against equity markets storms but an ulterior plunge in the volatility curve is a strong signal that the buying pressure is now diminishing (for a more precise explanation of the relationship between German Bund futures and volatility please watch our video-research on our HyperVolatility Channel).

The HyperVolatility team is moderately bearish German Bund even if we reckon that a sharp drop in futures prices is quite unlikely. The market will probably retest the 135 area by Friday but a sideways movement should dominate the upcoming trading hours.

Some short term opportunities could come during the FOMC announcement as many traders will attempt to buy Bund futures in order to avoid violent price shocks in risky markets.

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