German Bund Futures Volatility Forecast (27/03/2011)

The staff of HyperVolatility was right once again!!! Bund futures indeed decreased as forecasted and closed at 121.8 whilst our analysis suggested a closing price around the 121.5 euro.

The volatility is now sharply diminishing and the actual value is fluctuating around 0.43% (6.8% in annual terms) but the curve is still heading south highlighting an anomaly. In fact, the violent drop in price which experienced this market, at least in the last trading session, should have provoked a rise in market fluctuations but the plot does not report any substantial change.

Consequently, the leverage effect is now inverted and therefore a dropping in volatility is now going to imply a falling market price which should test the 120.5 – 121 euro by the end of the week.

The staff of HyperVolatility is moderately bearish on German Bund futures and we believe that, although the volatility will tend to get back in the 0.38% area (6% in annual terms) the price will continue to drop over the next 5 trading days.

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