Nov. 20 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac's $1.7 trillion of corporate debt rose to records relative to benchmarks, as GMAC LLC's application for status as a bank holding company potentially creates more competition from issuers of U.S.-backed debt.

The difference between yields on Washington-based Fannie's five-year debt and similar-maturity Treasuries widened 1.5 basis points to a record 158.5 basis points as of 4:15 p.m. in New York, after earlier rising as high as 172 basis points, according to data compiled by Bloomberg.

Investors sent spreads on so-called agency debt -- mainly Fannie, Freddie and Federal Home Loan Bank borrowing -- to records last month after the U.S. announced plans to guarantee bank debt, and thus create more investments with government support. Widening spreads this month also reflect jumps in other debt classes such as commercial-mortgage bonds amid forced selling and data suggesting a deepening recession.

``Until some confidence is restored, everything but things perceived to be the absolutely safest -- blue-chip asset classes, basically Treasuries -- is going to continue to underperform severely,'' Rob Fine, president of Broadpoint Capital Group's New York-based mortgage- and asset-backed bond unit, said in a telephone interview yesterday.

Interest Rate Risks

Fannie and Freddie's higher long-term debt costs are hindering their ability to buy mortgages and related bonds to support the housing market and forcing them to rely more on short-term debt, raising their interest-rate risks, the companies said in regulatory filings this month. Yields on 30-day agency debt today are 0.37 percent, Bloomberg data show.

Spreads on the more than $4.2 trillion of mortgage bonds guaranteed by Fannie and Freddie, a market the Treasury Department vowed to support when the U.S. seized the companies in September, rose today to the highest since March.

The difference between yields on Fannie's current-coupon 30- year fixed-rate mortgage securities and 10-year Treasuries surged about 18 basis points to about 233 basis points, data compiled by Bloomberg show. The spread helps determine interest rates on typical new home loans.

The spread on Fannie's five-year debt above interest-rate swaps today climbed 10.1 basis points to 73.1 basis points, compared with 37.4 basis points below that benchmark on Oct. 13, two days before the U.S. announced plans to guarantee bank debt. Freddie's two-year debt yields rose about 1 basis points to 159 basis points above Treasuries. A basis point is 0.01 percentage point.

`Flexibility and Stability'

Detroit-based GMAC's move to become a bank adds to a growing list of potential sellers of debt that may carry more explicit guarantees from the Federal Deposit Insurance Corp. than Fannie and Freddie's U.S. backing. GMAC is the largest lender to General Motors Corp. car dealers.

``As a bank holding company, GMAC would obtain increased flexibility and stability to fulfill its core mission of providing automotive and mortgage financing to consumers and businesses,'' GMAC said in a statement today.

Also this month, General Electric Co. said the U.S. government agreed to insure as much as $139 billion in debt for GE Capital Corp., its lending arm. Lincoln National Corp., Aegon NV, Hartford Financial Services Group, and Genworth Financial Inc. said that they may acquire small banks, potentially also gaining access to capital from a $700 billion rescue fund.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

Last Updated: November 20, 2008 17:10 EST