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The biggest risk to the bond market is not 3 percent yields: Wells Fargo

Something in the bond market beyond this week's jump in yields for 10-year Treasurys has one Wells Fargo strategist on alert.

"It's supply," Michael Schumacher, head of rate strategy at Wells Fargo, told CNBC's "Futures Now" on Tuesday. "When you think about the enormous amount of debt that U.S. Treasury's got to issue over not just this year, frankly, but next year, it's staggering."

The issue of government supply is one Schumacher calls "humungous" to the bond market. By his calculation, the Treasury will issue more than $500 billion in notes and bonds (net) in the second to the fourth quarter, pushing the total to around $650 billion for the year. Last year, the total came to just $420 billion.

"That's an increase of more than 50 percent," said Schumacher. "Who is going to buy these bonds? I think it's like playing whack-a-mole. You see a potential buyer pop up, and as soon as you know it, the buyer disappears. So it's a real challenge."

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The U.S. 10-year Treasury yield hit a high of 3.095 percent on Tuesday, a level not seen since July 2011. Schumacher called the move a "wake-up call" for investors but knocked back the notion that this was a cause for alarm.

"If the economic data are decent and if the Fed is not getting too crazy in terms of being hawkish, rates going up shouldn't be that scary," said Schumacher. "It's just that we've had a pretty calm market for a couple of years, barring the last few months. I think anything that's really a signal rate gets people a bit nervous."

A Federal Reserve going from dovish to hawkish this year has sent bond yields higher. Markets are pricing in the near-certainty of a 25-basis-point rate hike at the Fed's June meeting, the second increase of the year, according to CME Group fed funds futures. Markets also anticipate a third hike, but a fourth is still a toss-up.

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