Volkswagen AG's (VLKAY) auto loan backed bond, eligible for funding under a Federal Reserve program, has been increased in size to $1.75 billion, a person familiar with the matter said Tuesday.

The deal has launched and is scheduled to be sold later Tuesday, the deadline for loan applications for the Fed's Term Asset-Backed Securities Loan Facility, or TALF.

Led by JPMorgan Chase & Co. (JPM) and Banc of America Securities, the Volkswagen deal was originally $1 billion in size. Its largest triple-A rated tranche worth $489 million, has launched at 185 basis points over a short-term futures benchmark.

On Monday, JP Morgan sold its $5 billion credit card loan backed deal at 155 basis points over one month London interbank offered rate or Libor. This was the largest TALF eligible bond so far.

Another issuer, CNH Global NV (CNH), the agricultural and construction equipment unit of Fiat, increased the size of its offering to $1 billion on Monday from an original $780.6 million. It will be sold later Tuesday.

The increases in size of the bonds are a sign that investors have finally warmed up to the Fed's consumer lending program.

Eligible new issuance now stands at over $10 billion, ahead Tuesday's loan application deadline.

This is a notable increase over issuance seen in the first two months of the TALF, when investor wariness kept many on the sidelines.

General Electric Co.'s (GE) $1 billion credit card backed deal, Honda Motor Co.'s (HMC) $1.25 billion bond and motorcycle company Harley Davidson Inc.'s (HOG) $500 million deal are also to be sold on Tuesday.

TALF is aimed at jump starting consumer lending.

Investors apply for loans to finance bonds backed by credit cards, student loans, and other consumer loans once a month. Issuers have clustered bond sales around the loan application deadline, which is the first Tuesday of the month.

TALF-eligible issuance stood at $8.2 billion in March and just $2.57 billion in April.

-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com