I have written a lot about Italian sovereigns explaining why I like them compared to other European peers. However, I have never touched upon probably their most bullish scenario: Mario Draghi, the most dovish President the ECB has ever had, becoming Prime Minister.
Although it seems that a new majority led by Giuseppe Conte will be the most probable outcome, the market cannot discard the probability of a technical government led by Draghi. Such a result will send a pro-European signal provoking a fast tightening of the BTP-Bund spread. At that point, the only question will be "how much upside is there in BTPs"?
We believe that a temporary solution to the Eurosceptic threats coming from the Northern League and the Brothers of Italy parties will push the BTP-Bund spread to 2015 lows: 100bps and 120bps for the ten- and thirty-year spreads, respectively.