Broad government scrutiny of possible market rigging has deepened with a probe by the UK’s financial watchdog into trading of British government bonds by Lloyds Banking Group, according to people familiar with the matter.

The Financial Conduct Authority's inquiry, which is at an early stage, is examining whether Lloyds traders sought to increase their profits, either by driving down the prices that the UK bonds, known as gilts, fetched in government auctions, or by artificially inflating their prices when the bonds were sold on to other investors, one person said.