AllianzGI, Royal London stick with UK gilts, bet Starmer rivals will not forget 2022 rout

* AllianzGI sticks with bullish bet on UK bonds

* Royal London adds ​to position

* Truss ⁠episode seen keeping potential Starmer successor in check

* Investors are seeking opportunities in ​gilts - trader

LONDON, May 15 (Reuters) - Allianz Global Investors is sticking with a bullish bet on British bonds and Royal London is buying more, as major buyers of UK ​gilts ‌bet that memories of 2022's market meltdown will curb the fiscal ambitions of any potential new leader.

Britain's bond market has been rattled since the ruling Labour Party suffered sweeping losses in local ⁠elections last week, throwing Prime Minister Keir Starmer's future into doubt. Ten-year gilt yields jumped by ⁠their most in more than a year to their highest ​since 2008 on Friday, as a path opening up for Manchester Mayor Andy Burnham to challenge Starmer added to worries that a new, more left-wing leader would raise spending.

Burnham irked investors last year by saying Britain needed to move beyond "being in hock to the bond markets". He has suggested defence spending could be increased by putting it outside ​fiscal rules that ‌limit borrowing and wants tax cuts for low earners and to raise the top rate of income tax.

The potential for bond market pain, as the gilt rout that forced then Conservative Prime Minister Liz Truss out of office in less than two months demonstrated, will limit any new leader's hand, investors said.

"The UK is going to be consistently tested by the markets to maintain this (tight fiscal) policy stance," said Ranjiv Mann, lead portfolio manager at Allianz Global Investors, which manages 591 billion euros ($688 billion).

"That ​remains the core to our view," said Mann, who holds a position favouring 30-year gilts against U.S. Treasuries.

BEWARE THE 'BOND VIGILANTES' Gilt yields are the highest among major ‌economies, as Britain struggles with anaemic growth and persistent inflation, while the energy price shock from the Iran war poses a fresh challenge to its stretched finances.

Royal London Asset Management had bought UK bonds, said its head of rates and ‌cash Craig Inches, on the basis that yields at current levels were unlikely to be sustained. A fall in yields would mean bond prices rise.

"We have increased our position in gilts, as what the market is pricing seems unsustainable over the longer term, both from a fiscal headroom and debt financing perspective," he said.

"Burnham will ​need to be very gilt market friendly in his comments, otherwise the UK headroom will have disappeared before he gets to No. 10. It will be his chance of leadership that will be 'in ‌hock' to the bond market."

Ariel Bezalel, fixed income investment manager at Jupiter Fund Management, said he had reduced some gilts exposure in April, but still held a "decent" amount in short- and medium-dated bonds given high yields and cautious signs from potential leadership candidates. "Bond vigilantes I think will ensure that the UK government will be careful in terms ⁠of not going ⁠overboard on fiscal plans," said Bezalel.

Burnham has said his comments last year did not mean he thought bond markets ‌should be ignored, but that growth-boosting policies would reduce public costs.

Former Deputy Prime Minister Angela Rayner, another potential leadership candidate who is also seen as on the Labour Party's so-called soft left, gave investors ​a reassuring message on public finances on a ​call, the Financial Times reported in March.

A senior trader at a U.S. bank said he was seeing interest in gilts, ‌with investors weighing the right time to buy.

A rise in 30-year gilt yields to 6%, from around 5.8% now, would make them attractive, said Monica Defend, head of the investment institute at Amundi, Europe's largest asset manager.

"Even a left-wing Labour leader will not want to increase the deficit," said Defend, adding taxes would likely rise with spending.

Jupiter Fund Management