The US Treasury market is still in for big swings of volatility, which could push the yield on the 10-year Treasury bond to 5%, according to BlackRock.

"We have been underweight long-term US Treasuries since late 2020 as we saw the new macro regime heralding higher rates. US 10-year yields at 16-year highs show they have adjusted a lot – but we don't think the process is over," the asset manager's strategists said in a note on Monday.

The yield on the 10-year Treasury eased slightly since notching a 16-year-record earlier this month, but has been ticking higher again this week, trading around 4.809% on Tuesday, with the key bond yield spiking on hotter than expected retail sales data for September. 

The impact of policy rates on yields is likely nearing a peak, the strategists estimated. Yields are now likely to be impacted by the market's rising term premium. That's the yield investors are compensated for by buying long-dated US Treasury bonds, which have more interest rate risk than short-term Treasuries.

"We think 10-year yields could reach 5% or higher on a longer-term horizon," strategists said.

Over the short-term though, Treasury yields are likely to experience more volatility, potentially swinging in both directions. That's because the Fed is likely to shift away from its monetary tightening as it assesses the effects of its policy on financial conditions. 

Already, central bankers have raised interest rates 525 basis-points to lower inflation, a move that has weighed on markets and the economy. 

Markets are pricing in a 70% chance of at least one Fed rate cut by July 2024, according to the CME FedWatch tool. But the economy is still under pressure from higher Treasury yields, which also work to tighten the screws on financial conditions.

"Further damage from rate hikes will likely become clearer over time. We think these conditions bring us closer to when the 'politics of inflation,' or pressure on the Fed to curb inflation, will turn into pressure to stop hurting economic activity with tight monetary policy. We still see the Fed holding policy tight to lean against inflationary pressures," the note added.

Other commentators have warned of more potential downside in the Treasury market as investors deal with the outlook for higher for longer interest rates. Phillip Colmar, global strategist at MRB Partners, told Insider he saw the 10-year yield moving past 5.5% in 2024, as the Fed has previously suppressed longer-term yields with overly optimistic inflation views.