Fannie Mae raised $7 billion in its largest individual sale of senior debt Wednesday, after a federal takeover of the government-sponsored enterprise led to a record drop in yields relative to benchmarks.

The two-year benchmark notes were priced to yield 2.896%, or 70 basis points more than Treasuries of similar maturity. This was the lowest spread in a two-year sale by Fannie since June. Also Wednesday, the GSE sold $2 billion of short-term bills at lower yield spreads in a weekly auction.

On Sunday, the Treasury and the Federal Housing Finance Agency put Fannie and Freddie Mac into conservatorship and agreed to inject equity as needed under authority that runs through next year. The next day the extra yield investors demanded to own GSE debt rather than Treasuries plunged the most on record, though it remained higher than earlier this year.

For example, the spread over Treasuries on Fannie's outstanding two-year debt fell to 54 basis points on Monday, the lowest since May 27, from 89 basis points. Early Wednesday afternoon the spread was 56 basis points, compared with a five-year average of 30 basis points.

Treasury Secretary Henry Paulson has said he stepped in to prevent a collapse of the GSEs, protecting investors that own more than $5 trillion of Fannie and Freddie corporate debt and mortgage-backed securities while potentially sacrificing holders of the common and preferred stocks.

Some investors remained leery of GSE-related debt, however.

"I would not own anything to do with Fannie and Freddie because the government could change its mind," Jim Rogers, the head of Rogers Holdings in Singapore, said in an interview Wednesday. "I don't think they will, but I would not own them."

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