Italy’s Draghi-Fueled Bond Rally Has Legs For Barclays Analysts
Mario Draghi in Frankfurt, Germany. (Photographer: Alex Kraus/Bloomberg)

Italy’s Draghi-Fueled Bond Rally Has Legs For Barclays Analysts


Italy’s record-breaking bond rally still has room to run with Mario Draghi set to significantly reduce uncertainty over policy, according to Barclays Plc strategists.

The bank suggests investors stick with bets for Italian bonds to outperform Spanish peers, a position it first recommended before the former European Central Bank President was lined up as the next premier. It’s targeting a spread between the two nations’ 10-year yields of below 30 basis points, from a three-year low of 38 currently.

“Italian policy uncertainty could meaningfully decline in the near term under a Draghi-led government,” wrote strategists led by Cagdas Aksu in a note to clients. “There is still room for further outperformance.”

Italy’s Draghi-Fueled Bond Rally Has Legs For Barclays Analysts

Italy’s debt markets have been on a whirlwind rally on expectations that Draghi will stave off a political crisis in the country following the collapse of the ruling coalition last month. He has won near-unanimous support from across parliament to head up a new government. Ten-year yields fell to a record low of 0.5% Tuesday, while the spread over German bonds is at its lowest level in over five years.

The Barclays analysts also think Draghi’s appointment could be seen as a positive development by ratings agencies. Moody’s Investors Service warned earlier this month that Italy was one of the biggest concerns in Europe over the next five years.

Under a Draghi-led government, Italy will likely make “meaningful” progress in its vaccine campaign and recovery plan over the course of 2021, Aksu wrote. “This in turn could position Draghi as a candidate for the Italian presidency in 2022, which could potentially be another positive development for BTPs.”

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