German Bund Futures Volatility Forecast (27/09/2011)

German Bund futures opened at 137.5 on Monday, moved to 137.7 on Tuesday, closed to 137.9 on Wednesday, jumped to 138.7 on Thursday and settled to 137.6 on Friday.

The actual volatility is 0.57% (9% in annual terms) but the TGARCH curve is now slightly upward sloping even though we still remain in a fairly low level and very close to the long term equilibrium point. It is worth noting that this time the increase in the conditional variance has not been caused by an augment in the buying pressure but from a sharp decline in futures prices.

The fact that the symmetric effect between price and volatility is now over means that the volatility will probably tend to augment over the next trading days and accompany an ulterior drop of German Bund futures.

The announcement of the 2-3 trillion euro package and the consequent increase of the EFSF are likely to attract speculative sellers because most of the investors will switch their attention back on risky assets.

The HyperVolatility team is moderately bearish German Bund futures because the conditional variance is likely to head north over the next trading days whilst the price should retest the 134.5 – 135 area by Friday.

On the other hand, this market is one of the last safe havens remained and any bad macroeconomics news would provoke a massive buying pressure which would lift the price to 138.5

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