Big European investors bet against swings in ECB, Bank of England rate expectations

(Corrects job title in paragraph 6)

By Yoruk Bahceli and Amanda Cooper

LONDON, March 10 (Reuters) - Big European investors are pushing back against sharp bond market swings that have upended expectations for central bank rate cuts, arguing they have gone too far even if surging energy prices raise inflation risks.

Amundi, Europe's largest asset manager, has bought short-dated British and Italian government bonds and Allianz Global Investors added to a position favouring longer-dated UK bonds, senior fund managers told Reuters on Tuesday.

A surge in energy prices since the U.S.-Israeli war against Iran has rekindled inflation fears. At one point on Monday, as oil surged towards $120 a barrel traders briefly priced in a high chance of a Bank of England rate hike this year. Before the war they had bet on a cut this month.

In an equally rapid U-turn on Tuesday, traders went back to pricing a 50% chance of a cut by year-end as oil prices dropped.

Traders priced as many as two 2026 rate hikes from the European Central Bank on Monday, having priced a sizeable chance of a cut just last month. They were last pricing around a 70% chance of one rate rise by December.

"It's too early for central banks to act. So, we tend to fade this short term. If the market is pricing hikes like it is, I think it's a good value proposition," said Gregoire Pesques, chief investment officer of global fixed income at Amundi, which manages 2.4 trillion euros ($2.79 trillion).

Pesques echoed a view from many investors that the moves have been exacerbated by traders unwinding pre-war positions that were bullish on bonds.

Inflation fears have hit UK and euro zone government bonds hard given Europe's reliance on energy imports. Interest-rate sensitive two-year yields have risen around 30 bps in Britain and Germany as bond prices have tumbled.

That makes short-dated bonds attractive, said Pesques, who has added UK two-year paper. He is also buying two-year Italian bonds and selling 30-year debt.

Ranjiv Mann, a senior portfolio manager at Allianz Global Investors, said he added to a position favouring 30-year British relative to U.S. Treasuries last week. He believes the BoE will still cut rates in 2026.

"Clearly, in the short term, markets are questioning some of that (Bank of England rates) pricing, but we think the underlying backdrop still remains supportive for gilts relative to other markets," Mann told Reuters on Tuesday, also citing a weakening labour market, easing inflation and tight fiscal policy.?

(Reporting by Yoruk Bahceli and Amanda Cooper; editing by Dhara Ranasinghe and Karin Strohecker)