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German Bund Futures Volatility Forecast (30/08/2011)

German Bund futures opened at 135.3 on Monday, settled at 135 on Tuesday, plummeted to 134.2 on Wednesday, jumped back up to 134.8 on Thursday and closed at 135.2 on Friday.

The volatility is now 0.44% (6.9% annualised) and the TGARCH plot is now showing a slightly downward sloping curve which should keep plummeting over the next hours and settle around the long term equilibrium point which is around the 0.35% – 0.4% area ( 5.5% – 6.3% in annual terms). The positive correlation between the German Bund futures price and its volatility during market turmoil is a well known fact, hence, a softening of the volatility should be interpreted as a decrease in the buying pressure which pushed the price to make unprecedented new highs.

The HyperVolatility team is bearish German Bund futures because the conditional variance should settle around the long term equilibrium point whilst futures prices should decrease and eventually retest the 133.5 area by Friday.

It is comes without saying that bad macroeconomics news will keep futures prices well above the 135 level and some worse-than-expected reading, particularly NFP or Manufacturing Index, would push the price action towards the 136 threshold.

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