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6% Treasury yields? May come sooner than you think

Jin Lee | Bloomberg | Getty Images

The Federal Reserve will lose control of interest rates as the "great rotation" out of bonds into equities takes off in full force, according to one market watcher, who sees U.S. 10-year Treasury yields hitting 5-6 percent in the next 18-24 months.

"It is our opinion that interest rates have begun their assent, that the Fed will eventually lose control of interest rates. The yield curve will first steepen and then will shift, moving rates significantly higher," said Mike Crofton, President and CEO, Philadelphia Trust Company told CNBC on Wednesday.

"If the great rotation that everybody talks about out of bonds into stocks does happen, and that gains its own momentum, you will see rates begin to back up very quickly; the Fed will not be able to control it," added Crofton, who argues that for now, "the great rotation" has been more out of bonds into cash, rather than stocks.

(Read more: Goldman Sachs:Treasury yields will hit 4%)

Under this scenario, he sees the yield on the 10-year rising to 3.5-4 percent in a "very short period of time." Thereafter, he expects yields to move to 5-6 percent over the next 18-24 months. Yields were last seen at above 6 percent in 2000.

Crofton says that as the average investor begins to see that they are losing money on their bond portfolios, this will drive fear into the market that will feed on itself. "More and more bonds will be sold and rates will continue to go up."

U.S. government bond yields have risen at a faster-than-expected pace in the recent months on expectations that the Fed will begin scaling back its monthly bond buying program later this year.

Earlier this month, 10-year Treasury yields, which move in the opposite direction to prices, spiked to 2.73 percent - the highest since August 2011- from around 1.7 percent in early May.

(Read more: Bond yields getting closer to pain threshold)

Crofton is not alone in his bold prediction on the outlook for 10-year Treasury bond yields. Societe Generale believes they will rise to 5 percent by 2017. However, this is less aggressive than Crofton's 2-year time frame for 6 percent yields.

Inflection point

Crofton says that markets are at an inflection point in the U.S. interest rate cycle, which typically last 30 years.

"The last time interest rates peaked was about 30 years ago. (Now) they are troughing and that's always a point where the Fed is going to try and maintain control for as long as they can," he said.

(Read more: Bond sell-off heightens risk of '1994 moment')

The rising rates are unlikely to lead to a surge in defaults, according to Crofton, who says that while the municipal sector may be vulnerable, corporates are in a good shape to weather a tightening monetary environment.

"I don't think you're going to see a lot of defaults in the corporate sector because corporations have been very smart at this time of the cycle. They have refinanced everything they possibly can, at the lowest rates they can possibly achieve," he said.

—By CNBC's Ansuya Harjani; Follow her on Twitter: @Ansuya_H

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