Executives of Paul Singer's hedge fund Elliott Management, in a letter to investors seen by CNBC's Kate Kelly, warn that a rapid inflation is the $30 billion hedge fund's biggest concern in the current environment.

They warned that such a spike would not only collapse bond prices, but potentially lead to a stock market crash.

"This may seem like a strange thing to worry about under the current circumstances, but the tide toward inflation could turn rather abruptly," wrote the money managers in their third-quarter letter, dated Oct. 28. "If inflation starts accelerating to an annual rate of high single digits or greater, it will be quite difficult for the mix of strategies that Elliott favors to 'keep up,'" they said.

"Every sniffle is being treated by central banks as acute respiratory distress syndrome worthy of 'code-blues' and teams of frantic pumpers and fixers," the managers wrote.

"What this policy landscape has engendered is a widespread belief, or at least a strong suspicion, that stock and bond prices won't ever be allowed to go down in any meaningful way."

This mentality, the writers added, "has encouraged massively risky behavior."

To be sure, one of Wall Street's favorite trades—inflation-protected Treasuries—is finally back in vogue.

Investors' appetites for an exchange-traded fund that provides exposure to bonds whose principal and coupon payments are adjusted for inflation have soared in recent sessions. Weekly inflows into the iShares Treasury Inflation Protected Securities Bond ETF (TIP) reached their highest level on record as investors brace for the possibility of a sustained upturn in price pressures, Bloomberg reported.

And there are other storm clouds on the financial horizon for investors. The changing relationship between bonds and stocks may be a sign of trouble ahead, The Wall Street Journal warns.

“A generation of traders have grown up with the idea that stock prices and bond yields tend to rise and fall together, as what is good for stocks is bad for bonds (pushing the price down and yield up), and vice versa,” the Journal explained.

“This summer, the relationship seems to have broken down in the U.S. Share prices and bond yields moved in the same direction in just 11 of the past 30 trading days, close to the lowest since the start of 2007,” the Journal reported.

Since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy, the Journal reported. Such a trend has tended to coincide with times of deep discontent in markets, notably the 2013 “taper tantrum,” when bond yields briefly surged after Federal Reserve officials signaled they would soon end stimulus.

"It could be that this summer’s price moves were just noise while traders were on the beach, and stock prices and bond yields will start moving together again soon. But keep an eye on those correlations, as shifts often mean tough times ahead for investors," the Journal warned.

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