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BlackRock Italian bond ETF sees inflows as Draghi agrees to form government

IITB saw $90.7m inflows in the week to 5 February

Jamie Gordon

Reichstag building with flags on it

BlackRock’s Italian government bond ETF has booked strong inflows as investor confidence was restored in the stability and economic acumen of Italy’s leadership.

According to data from Ultumus, the $1.4bn iShares Italy Govt Bond UCITS ETF (IITB) saw a 4.5% increase in assets under management (AUM), courtesy of $90.7m inflows during the week to 5 February.

This followed news that former European Central Bank (ECB) president Mario Draghi was moving closer to becoming the Italian Prime Minister as the largest parties in the country’s parliament both softened their initial resistance to the move. 

It remains to be seen whether the two anti-euro parties, the League and Five Star Movement, will be brought into Draghi’s new government. But, having been asked to form a government last Wednesday by president Sergio Mattarella, it is thought that Draghi may be at the helm before the end of the week.

On the news, the spread between Italian and German 10-year bond yields fell by 0.94 percentage points to its lowest level since early 2016. Italian 10-years are trading around 0.54%.

The hope is that having built his reputation as the ECB president who led the EU bloc out of the 2008 Global Financial Crash (GFC), Draghi will be the right person to marshal Italy out of the coronavirus pandemic and inspire an economic recovery.

Offering a positive forecast for the Draghi administration, Gilles Moëc, chief economist at AXA Investment Management, said he expects the former ECB president’s leadership to incur ‘good debt’ – the kind that funds future productivity and sustainability within Italy’s public finances.

Moëc added that in the fight against secular stagnation, Draghi could also look to draw on the EU’s Recovery and Resilience Facility as well as the ECB’s insurance against market pressure.

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Mohammed Kazmi, portfolio manager for absolute fixed income at UBP, added: “The news not only has the potential to reduce political uncertainty as if he is successful it will end any fears of early elections, however, it also provides hope for the future leadership of Italy following Draghi’s impressive track record at the ECB.

“Markets can take confidence from Draghi’s actions of the past, where he clearly understood market dynamics, which will help further in keeping BTP spreads contained.”

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