Regulations designed to safeguard the $2.7 trillion U.S. money-market industry threaten to steer cash toward higher-risk alternatives.

Investors may respond to the market overhaul that took effect last week by seeking the higher yields of short-term bond funds, say Crane Data, Fitch Ratings and Goldman Sachs Asset Management. In a sign of the segment's appeal, a category that Crane dubs conservative ultra-short bond funds, with maturities mostly less than one year, has swelled to a 19-month high of almost $31 billion.

But these funds aren't subject to the same standardization as their money-market counterparts, raising the prospect that investors will be surprised by the degree of potential losses and even run for the exits if values slide. That may undermine some of the benefits from the money-fund revamp, which most firms agree has gone a long way to reducing systemic risks in an industry that helped fuel the financial crisis.