In either a sign of economic recovery or of short-term memory loss, the Wall Street Journal's Daisey Maxey is reporting that money-market funds are again investing heavily in long-duration, high-risk securities.

As a response to last fall's market meltdown, many money-market funds turned toward safer, lower-yield investments. However, as Maxey's "Fund Track" notes, managers are seeing a deficiency of "high quality, short-term liquid investments." This trend, combined with low interest rates, is moving managers to again turn toward higher-yield options. Maxey cites the $705 million Accessor U.S. Government Money Fund as an example: in September, the fund's manager told shareholders that the fund would now invest in commercial paper.

"The pendulum has never swung so quickly from greed to fear and back again," Peter Crane, president of Crane Data LLC, told Maxey.

Maxey points to the $5 million Monetta Government Money Market Fund as one example of the risk involved; on Tuesday the fund's manager disclosed that it would liquidate by mid-December.

High-risk investments may not be a bad idea if the Fed keeps interest rates in the 0 to 0.25 range. However, Federated Investors's CIO Debbie Cunningham says that her firm's money-market funds aren't "for the most part" switching back to longer-dated maturities, believing that interest rates should increase sometime next year.  

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