Art Cashin warned on Wednesday that a self-fulfilling prophecy could take hold in bond markets, causing yields to spiral out of the Federal Reserve's control.
Treasurys were on the back foot Wednesday as a rise in the benchmark 10-year German bund yield kept pressure on the U.S. bond market.
The 10-year Treasury yield, which moves in the opposite direction of the price, rose to a new eight-month high of around 2.49 percent before trading near 2.48 percent, as bund yields pushed above 1 percent for the first time since last September.
"If the yields move up and people who are in bond funds and other places begin to get nervous and they start to redeem their shares in those bond funds, that may force bonds to liquidate even more and thereby push yields even higher," Cashin told CNBC's "Squawk Alley."
"While the Fed is talking about being measured and data dependent, they're potentially playing with fire here because they could start spontaneous combustion that they can't control," UBS' director of floor operations at the NYSE said. (Tweet This)
The Fed has held interest rates near zero since December 2008. It is widely expected to raise interest rates in 25-basis-point increments, perhaps as early as this year.
Government bonds in both Europe and the U.S. have come under heavy selling pressure over the past week amid a growing perception that a pickup in economic activity and inflation means that ultralow debt yields are no longer justified.
The United States is unlikely to see another taper tantrum as bond yields normalize, but German fixed income is looking scary and could impact U.S. markets, Princeton Securities' Ben Willis said Wednesday.
"The risk to the equities market is in the fixed income market, and that rattle that we saw happen in Germany can very well affect us," Willis told CNBC's "Squawk on the Street." "It's the way it happened, it's the volatility and the swiftness of the move that should scare investors who are in fixed income right now, saying, 'Should I really be here?'"