HBOS PLC, the United Kingdom's largest mortgage lender, said it will repay commercial paper for its Grampian Funding LLC division after costs to borrow in the short-term market surged to the highest in more than six years.

Grampian, Europe's biggest issuer of asset-backed commercial paper, will use funding from HBOS to repay short-term debt "until such time as market pricing improves to a level acceptable to HBOS," the Edinburgh parent company said Tuesday.

The repayment will not hurt HBOS' earnings, the lender said.

Yields on asset-backed commercial paper soared Tuesday to 6.09%, the highest level since January 2001. Investors have shunned the securities because of concerns about the value of mortgages backing them.

According to UBS AG, home lenders and firms that rely on the commercial paper market for funding will be forced to sell $75 billion of assets unless they can find buyers for the debt.

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