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LGIM's CIO Laud says hard to take long-term view on UK gilts

Bank of England poised to raise interest rates to tackle inflation

By Naomi Rovnick and David Milliken

LONDON (Reuters) - Britain's biggest asset manager, Legal & General Investment Management, said it was hard to take a long-term view on British government bonds given a lack of clear narrative on UK inflation and interest rates.

The firm, which manages $1.4 trillion in assets, is looking tactically at British government bonds but not engaging longer-term, its chief investment officer, Sonja Laud, said at a media briefing on Thursday.

Data on Wednesday showed Britain's stubbornly high inflation rate fell by less than expected in April, sending UK government bond yields spiking as traders sharply raised their bets on further Bank of England rate hikes.

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Laud said the inflation numbers will put a lot of pressure on the BoE, which lifted rates for a 12th straight time earlier in May.

"There are inflationary pressures here (UK) that clearly are still higher than what we see elsewhere in Europe or the U.S.," Laud said, adding that there might be more volatility in gilts compared with the United States, where the policy path for the Federal Reserve is clearer.

"We are looking more tactically at gilts because with the volatility at hand there are opportunities. But we are not engaging in the longer term, simply because of the lack of a clearer narrative until now," she added at the briefing.

LGIM issued a later statement saying that the asset manager was currently neutral on gilts and investors needed to be prepared for more short-term volatility.

"Looking ahead, we believe that some long-term value is emerging in the index-linked market given the held-to-maturity inflation protection on offer. We will reassess our view in the context of incoming data points around growth and inflation," Laud said in the statement.

Laud told reporters earlier the firm was also cautious on residential and commercial real estate, underweight equities and credit, while it favours the U.S. dollar and Treasuries.

"We have been using Treasuries as an addition to portfolios again," she said.

Laud added that LGIM was overweight U.S. Treasuries because the firm believes there will be a recession.

(Reporting by Naomi Rovnick and David Milliken; Writing by Yoruk Bahceli; Editing by Dhara Ranasinghe and Matthew Lewis)