July 15 (Bloomberg) -- The cost of protecting against losses on Treasuries soared to a record on concern that the U.S. government faces higher liabilities with its support for Fannie Mae and Freddie Mac, credit-default swaps show.

Contracts on U.S. government debt increased 2 basis points to 22 basis points at the close of trading in London, according to CMA Datavision, after earlier reaching as high as 24. The 10- year contracts exceeded a previous record of 20 basis points yesterday. Five-year contracts were unchanged at 16 basis points, according to CMA.

Treasury Secretary Henry Paulson said July 13 the U.S. would seek authority from Congress to buy unlimited equity in so-called government-sponsored enterprises Fannie Mae and Freddie Mac and to extend them as much credit as needed. The move effectively put the weight of the treasury behind the companies, which own or guarantee almost half of the $12 trillion in U.S. home loans outstanding. The Federal Reserve also agreed to lend directly to Fannie Mae and Freddie Mac.

``The market is starting to look at the senior debt of the GSEs as approaching full-faith-and-credit obligations of the U.S. government,'' said Ken Hackel, managing director of fixed-income strategy at RBS Greenwich Capital in Greenwich, Connecticut. ``That is a large book of debt to effectively transfer to the U.S. balance sheet and increase the government's liability.''

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net

Last Updated: July 15, 2008 13:53 EDT