Lloyds Banking Group PLC (LON:LLOY) has become the first lender to issue bonds tied to Sonia -- the reformed interest rate benchmark the Bank of England has launched as an alternative to Libor following a rigging scandal.
Lloyds sold £750 of debt, pricing the three-year bond at 43 basis points above the Sonia rate, which stands for the Sterling Overnight Index Average.
Banks have been fined about US$9bn for trying to rig Libor, or London Interbank Offered Rate, leading the Bank of England to launch a reformed version of Sonia as an alternative benchmark in April.
In the past, Sonia was run by a trade body, but it is now calculated and published by the BoE.
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Last year, financial institutions and other market participants backed Sonia as a substitute to Libor that is more difficult to manipulate since it is based on actual transactions instead of quotes from banks.
While authorities have urged banks to move off Libor, there are still US$370bn of financial products tracking the benchmark and European equivalent Euribor worldwide.
Lloyds said investor demand for its bond was strong with order books exceeding £1.4bn.
“This is a prudent way to fund the group and to meet the Bank of England’s new regulatory objectives,” said Peter Green, head of public senior funding and covered bonds at Lloyds.