German Bund Futures Volatility Forecast (21/03/2011)

The market rallied to 123.7 and then retraced towards 122.7 euro by the end of the week: what a wonderful trade!!! We entered some longs since the beginning of the week and closed all our positions as soon as the market opened on the 17th.

The volatility is now at 0.58% (9.2% annualised) but the great explosion that accompanied the surge in price is a warning signal. Specifically, a downward sloping curve should be interpreted in a different way and the diminishing market volatility, at least in this case, should highlight the return of German Bund futures to a down trend.

Additionally, the TGARCH curve could touch the 0.4% area (6.3% annualised) by the end of the next week and that would imply a consistent drop in price. In particular, German Bund futures should touch the 121 – 121.5 euro by the next Friday.

The staff of HyperVolatility is bearish on this market and we will try to place some shorts as soon as the market opens but the arrival of bad news from Japan or Libya will immediately obligate us to reverse our positions.

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