The Wall Street Journal put it succinctly: “Wall Street is preparing for panic on Main Street.”

Or, more accurately, panic among retail investors.

You may recall how money managers like John Paulson made a reputation betting against sub-prime mortgages. This time around, some hedge funds think they've found a weakness in high-yield bond mutual funds and exchange-traded funds (ETFs).

Apollo Global Management (APO) and Oaktree Capital Group (OAK), for instance, are buying credit default swaps and put options on junk bond ETFs. Those instruments will rise in price if junk bonds fall.

Indeed, warnings about these junk bond funds seem to be growing. Everyone from activist investor Carl Icahn to the Bank for International Settlements (BIS) is sounding the alarm bells. In its latest annual outlook, released in June, the BIS warned that “investors have increasingly relied on fixed-income mutual funds and ETFs as sources of market liquidity.”

For his part, Icahn has been a frequent target of criticism from the world's largest money manager, BlackRock (BLK), and its CEO, Larry Fink. But at CNBC's Delivering Alpha conference in New York, Icahn turned the tables. He said, “BlackRock is an extremely dangerous company.”

Icahn warned of a bubble in high-yield bonds fueled, at least in part, by BlackRock bond ETFs that continue snapping up assets. The bond ETFs continue buying as investors, in an endless search for higher yields, keep pouring money into the funds.

Today, BlackRock's iShares iBoxx High Yield Corporate Bond ETF (HYG) and the SPDR Barclays High Yield ETF (JNK) are the two biggest junk bond ETFs, with combined assets of nearly $25 billion. Overall, high-yield bond ETFs have about $38 billion in assets. Meanwhile, the BIS reports that bond funds have received $3 trillion in investor inflows since 2009 alone.

The Elephant in the Room

So what's wrong? Investors are buying funds in search of higher yield and these funds are providing just what they need.