Lloyds Bank will price the largest sterling benchmark covered bond since March 2012 today (Tuesday), a well received £1bn (Eu1.20bn) three year FRN that also marks the first UK sterling covered bond supply in a year-and-a-half.

Lloyds’ deal is the first UK sterling covered bond since June 2012, when Clydesdale Bank tapped the market. It comes after Abbey National Treasury Services ended a drought of UK benchmark covered bond supply in any currency with a Eu1bn transaction in the middle of November.

The Bank of England shortly thereafter announced its Funding for Lending Scheme (FLS) would from January 2014 no longer cover mortgage lending and instead only concentrate on supporting lending to small businesses. The FLS was designed to encourage bank lending to the real economy, with cheaper funding available under the scheme often cited as having disincentivised UK banks from tapping the debt capital markets. Wholesale funding requirements were also lower for UK banks in 2013, but are expected to be somewhat higher this year.

Lloyds’ covered bond comes alongside a five year senior unsecured transaction for Abbey in euros to make for an active start to the new year for UK issuers, reflecting the higher funding requirements, noted a syndicate banker.

Leads Lloyds, RBS, Standard Chartered and UBS will price the £1bn three year FRN at 30bp over three month Libor on the back of an order book of some £1.6bn, according to a syndicate official at one of the leads.

Initial price thoughts were set at the low to mid-30s over before guidance of 30bp-32bp over.

The deal is the largest sterling covered bond since March 2012, when Lloyds TSB Bank, as the issuer was then called, sold a £1.25bn 15 year issue.

Syndicate bankers on and off the deal said it went well, with one having expected a strong outcome in terms of pricing and size given a lack of sterling FRNs and UK covered bonds, and the issue’s eligibility for repo with the Bank of England.

“It’s a must-buy for the majority of UK bank treasuries,” he said. “There’s huge regulatory sponsorship for the covered bond product.”

A syndicate official at the leads said that demand came mostly from UK accounts, but that Asian orders had also been placed.