Mortgage giant Freddie Mac (FRE) sold its largest-ever debt issue of $10 billion in three-year notes Wednesday.

The 2.125% bond was priced at its launch price guidance of 88 basis points over comparable 3-year Treasury yields, a premium over current trading levels on comparable bonds.

Freddie's new note due March 23, 2012, priced at 99.636 to yield 2.247%.

Currently, risk premiums on Fannie's comparable 2% three-year note are tighter by 3.5 basis points at 68 basis points over comparable Treasury yields, according to TradeWeb data.

However, the demand for the deal may be the latest testament to investors' increasing confidence in the government's support extended to Freddie and its sibling Fannie Mae (FNM), both of which were put under conservatorship by its regulator last September.

The mortgage-finance company seems to be well past the days when buyers demanded higher premiums on debt due to mounting concerns about its capital, and whether the extent of government backing would be enough to pull the mortgage finance companies through the housing crisis.

"Investors are becoming more comfortable with the reality of the GSEs' relationship with the government," said Margaret Kerins, head of agency strategy at RBS Greenwich.

In addition, the announcement Wednesday of the U.S. Treasury Department's increase of its preferred stock purchase agreement to $200 billion from $100 billion bound the two companies closer to the government, she said. The measure is expected to ensure the companies' net worth stayed positive despite expected losses in the next few quarters.

This relationship may be further cemented if the Office of Management and Budget decides to move Fannie and Freddie onto the federal budget at the end of this month.

Debt-market investors are factoring in this potential "nationalization" as they flock to buy Fannie and Freddie debt.

This three-year note is Freddie's second foray into the debt markets this year. Previously, it raised $3.5 billion of five-year and $3 billion of two-year securities in January. These capital raises would allow the mortgage company to continue guaranteeing and buying mortgage bonds.

The lead managers on the deal are J.P. Morgan Chase, Morgan Stanley and UBS Investment Bank.

-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@dowjones.com