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The man who helped save the Euro has bond investors in a frenzy.

Just a few days after Mario Draghi was sworn in as Italy’s new prime minister, the country’s 10-year bond offering drew a record €110 billion of orders on Tuesday.

The Financial Fixer
Draghi — the former president of the European Central Bank — knows his way around a crisis. The economist and central banker extraordinaire was widely credited with navigating the eurozone back from the brink of collapse in 2012.

With a continental debt fiasco in his rearview, Draghi’s new task is guiding Italy to economic recovery after last year’s historic recession:

  • Draghi's main imperative will be efficiently deploying Italy’s €200 billion recovery fund.
  • Alongside everyone from Sicily to Milan, Italy’s European neighbor states will be keeping a close eye on Draghi’s handling of the situation. They’re footing the bill for Italy’s bailout, after all.

But investors are showing supreme confidence in the man nicknamed “Super Mario.” The latest bond offering priced at a yield of 0.604%, close to the lowest Italy has paid to borrow in the last decade.

Fixing Italy
It may have quality gelato and arancini, but Italy lags many of its EU peers in GDP per capita and absolute growth. Economic output in Italy grew just 0.3% in 2019, compared to 1.6% for the broader EU.

Then in 2020, the Italian economy contracted 8.8% (relative to down 6.4% in the EU), and the European Commission is now painting a not-so-bene picture for the near future:

  • The Commission’s forecast last week stated, “While some Member States are expected to see the distance to their pre-crisis output levels close by the end of 2021, others are forecast to take longer.”
  • Those unnamed “others” are Spain and Italy, which are not projected to achieve pre-crisis output levels until 2023.

The Takeaway: Italians will look to Super Mario to use the healthy checkbook he’s been given to help wave “Ciao!” to their economic woes sooner rather than later.


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