During the subprime fiasco, many exchange traded fund (ETF) investors have sought safety by moving their holdings into money-market funds and U.S. Treasury bonds. In fact, investors poured $49 billion into these funds in just one week recently, according to the Investment Company Institute.

However, money-market funds might not be as safe as most investors think. Some of the largest money-market funds today are putting some of their cash into questionable debt investments: collateralized debt obligations (CDOs) backed by subprime mortgage loans. U.S. money-market funds run by Bank of America (BAC), Credit Suisse (CS), Fidelity Investments and Morgan Stanley (MS) had more than $6 billion of CDOs with subprime debt in June, according to fund managers and filings with the SEC, reports David Evans for Bloomberg News.

As a sign of money-market funds’ stability and safety, they were designed so that their share prices never rise above or fall below a $1 for each dollar invested. Only once have the share prices in a money-market fund fallen below a $1 to 96 cents, and that was in 1994. The fund was liquidated. So although money-market funds have much risker components than most investors previously realized, most experts agree it is unlikely that they will dip below $1.

Tags: Bond ETFs