German Bund Futures Volatility Forecast (24/07/2011)

German Bund futures dropped all week long and the plummet was even significant in terms of magnitude. In fact, the market opened at 129.3 on Monday, dropped to 129.2 on Tuesday, settled around 128.3 on Wednesday, plummeted to 127 on Thursday and closed at 127.5 on Friday.

The volatility is now 0.7% (11.1% annualised) and the TGARCH plot is visibly showing an upward sloping curve which has just achieved one of the highest levels, in terms of market oscillations, ever touched over the last 5 trading months.

Clearly, the decrease in German Bund futures, and the consequent explosion in its volatility, has been caused by the great performance that equity indices had the last week because we had a “text-book” like type of market: depreciating US dollar, rising S&P500, dropping German Bund and plummeting volatility.

The HyperVolatility team is bullish this market because the volatility is way too high and will probably try to mean revert. Consequently, German Bund futures should be favoured by such a low fluctuations rate and head north once again.

The medium term trend is still bullish and, despite the drop in price we saw last week, we are not aware of any significant and fundamental change in the macroeconomics environment so relevant to justify a great and continuous drop in Bund futures.

We think that the week ahead should be a sideways one, at least in the first half, whilst the price should retest the 129.5 area by Friday.

Leave a Reply

Your email address will not be published. Required fields are marked *

Go back to top