Lloyds TSB plans to sell govt-backed bonds

Lloyds TSB Group Plc, the British bank that agreed to buy HBOS Plc, plans to sell three-year UK government-guaranteed bonds in euros and pounds, according to a banker involved in the transaction.

The sale comprises 2 billion euros and 1.4 billion pounds of bonds, said the banker, who declined to be identified because the deal isn't complete. The notes will be priced to yield 18 basis points more than the benchmark mid-swap rate, the banker said. A basis point is 0.01 percentage point. London-based Lloyds will be the fourth lender to use the UK government's pledge to guarantee as much as 250 billion pounds of bank debt to help unlock credit markets. Barclays Plc, Britain's second biggest bank, HBOS Plc and Royal Bank of Scotland Group Plc sold the equivalent of 8.4 billion pounds of guaranteed debt.

"There is strong demand for the guaranteed paper, but for signs that the markets are really thawing we would need to see banks starting to issue non-guaranteed debt," said Corinne Cunningham, a credit analyst at Royal Bank of Scotland in London. The UK government is bailing out its banks as the economy heads toward its first recession since 1991. Prime Minister Gordon Brown has called on banks to start lending again after credit markets seized after the bankruptcy of Lehman Brothers Holdings Inc in September. The Treasury is charging banks an annual 50 basis points for the guarantees plus a fee based on the price of the lenders' credit-default swaps, according to the UK Debt Management Office. The cost is on top of the fees charged by underwriters to sell the debt and the interest paid to investors.