German Bund Futures Volatility Forecast (29/05/2011)

The great uncertainty that characterised most of the equity markets pushed many investors and traders towards a safer type of investment and this resulted in increased German Bund futures prices.

The market opened at 125.1 and moved around this value for about 2 days but the final part of the week saw a sharp rise in price which at first brought German Bund futures to 125.5 euro whilst on Friday the price action remained almost unchanged; in fact, 125.59 euro was the final closing price.

The actual volatility is 0.37% – 0.38% (5.8% – 6% annualised) and the curve is now slightly upward sloping but the overall chart is displaying a fairly stable situation which mirrors the short term uptrend which brought futures prices to the 125.5 euro level.

The HyperVolatility team remains quite suspicious on this market because we do not believe that the 126 euro threshold will be surpassed, at least in the upcoming week, and a sideways movement could manifest itself since the beginning of the new week.

We will wait for the volatility to provide us with a reliable entry signal but without an increment in the conditional variance with are not going to enter the market at all.

Furthermore, there might be a possible attempt to bring the market back into the 124.5 zone but the potential down move should become more evident in the second half of the week.

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