The reforms have triggered an exodus from prime funds. Assets in that category have plunged by $974 billion in the past year to $473 billion. Almost all of it has flowed into government-only funds, which have doubled to $2.05 trillion over the same span.

“There is a lot of uncertainty around prime funds,” said Tom Callahan, head of global cash management at BlackRock, the second biggest money-market fund company with about $250 billion of such assets. “For some, it’s the floating NAVs. For some, it’s the gates and for some, it’s the fees. For some it’s all of the above.”

The shift in demand will be key as government spending on Social Security, Medicare and Medicaid widens the budget shortfall. The public debt burden may swell by almost $10 trillion in the coming decade, according to Congressional Budget Office forecasts, and the U.S. government has already taken advantage of the increase in bill demand to boost issuance.

“The Treasury is probably real happy with the results,” said David Glocke, the head of taxable money markets and Treasury bond trading at Vanguard, which manages about $195 billion in money-fund assets. “They can increase the issuance at the short-end of the curve and take advantage of it.”

That’s already playing out in the relative cost of borrowing. While all market rates have risen since the Fed raised rates in December, banks and corporate borrowers have borne the brunt of the money-market reforms. The gap between the three-month T-bill rate and the comparable London interbank offered rate -- a proxy for unsecured bank funding costs -- jumped to 0.69 percentage point in the past month, the most since 2009.

Corporate IOUs

Corporate IOUs have also been hit. The amount of commercial paper outstanding has declined for six consecutive months to a level not seen since the late 1990s. The market for IOUs issued by foreign financial firms, which are particularly dependent on money-market demand, is in the midst of the worst downturn since the credit crisis.

“This was a structural change,” said Gregory Fayvilevich, an analyst in the fund and asset management group at Fitch Ratings. “Prime money funds traditionally made up a very big portion of holders of CP. That is why you are seeing a very big impact.”

Deborah Cunningham, the chief investment officer for global money markets at Federated Investors, says that investors will slowly reallocate money back to prime funds as the yield advantage grows. Though she says, the gap needs to reach somewhere “north of 40 basis points” (or 0.4 percentage point) to offset the perceived risks.

The seven-day yield for institutional prime funds stood at 0.29 percent as of Oct. 6, versus 0.17 percent for government funds, according to Crane Data LLC.