The paper describes the capability of magnetic softening of a coarse-grained bulk material by a severe deformation technique. Connecting the microstructure with magnetic properties, the coercive field decreases dramatically for grains smaller than the magnetic exchange length. This makes the investigation of soft magnetic properties of severely drawn pearlitic wires very interesting. With the help of the starting two-phase microstructure, it is possible to substantially refine the material, which allows the investigation of magnetic properties for nanocrystalline bulk material. Compared to the coarse-grained initial, pearlitic state, the coercivities of the highly deformed wires decrease while the saturation magnetization values increase—even beyond the value expectable from the individual constituents. The lowest coercivity in the drawn state is found to be 520 A m−1 for a wire of 24-µm thickness and an annealing treatment has a further positive effect on it. The decreasing coercivity is discussed in the framework of two opposing models: grain refinement on the one hand and dissolution of cementite on the other hand. Auxiliary measurements give a clear indication for the latter model, delivering a sufficient description of the observed evolution of magnetic properties.