Junk bonds are flying high, with the Barclays U.S. Corporate High-Yield Index generating a return of 3.36 percent so far this year and 7.42 percent for the past 12 months.

But some market participants warn that it may be going too far.

"The game has changed in the high-yield market, and it has become more sophisticated than it was two or three years ago," Sabur Moini, a high-yield fund manager at Payden & Rygel, tells the Financial Times.

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"You have to keep asking yourself how much more extra 'risk' you want to keep adding to your portfolio in order to keep the same level of returns."

The low interest rate environment created by massive central bank easing around the world has investors desperately searching for yield. And the low corporate default rate that currently prevails has made investors comfortable with junk bonds, the Times reports.

Brad Rogoff, head of credit strategy at Barclays, tells the Times that there is still value in high-yield bonds sold by U.S. companies in sectors such as mining and retail.

But some see dangers. "There are segments of the high-yield market that do not compensate you for the risk you are taking by owning them," Michael Fredericks, portfolio manager at BlackRock, tells the Times.

One recent junk bond issue reportedly drew the interest of some major hedge funds — Puerto Rico's $3.5 billion offering.

John Paulson's Paulson & Co., Och-Ziff Capital Management, Fir Tree Partners, Perry Capital and Brigade Capital Management each bought more than $100 million of the bonds, according to The Wall Street Journal.

Editor's Note: 38 Trades That Could Turn $1,000 Into $49,000

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