While there has been much talk of a "Great Rotation" into stocks from bonds, Larry Fink, CEO of BlackRock, the world's biggest money manager, sees a rotation within the bond market.

Investors are adjusting to higher interest rates, he tells CNBC. The 10-year Treasury yield stood at 2.86 percent Friday, up from 1.66 percent May 2.

"If you believe interest rates are going higher, [the core bond index] is going to be a painful index to be sitting in," Fink predicts. "We are seeing a rotation from core index into low duration, into high yield."

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The Barclays Capital U.S. Aggregate Bond Index has dropped 1.29 percent over the last year. Meanwhile, the Barclays Capital U.S. Treasury 1-3 Year Index has gained 0.34 percent. And the Barclays Capital U.S. Corporate High Yield Index has soared 7.04 percent.

If stocks keep rising, as interest rates appreciate, "you will see rebalancing into fixed income," as investors search for safety, he explains.

As for the economy, Fink thinks it will grow 3 to 3.5 percent in 2014. "The U.S. is going to get stronger primarily because we more rapidly fixed our banking system."

Treasurys have gained since the weak December jobs report, with the 10-year yield hitting a one-month low Monday.

"There's clearly demand for Treasurys," Larry Milstein, managing director of government-debt trading at R.W. Pressprich, tells Bloomberg.

"Inflation numbers don't seem to be an issue at this point. There's still some concern on the Fed's part with respect to inflation, but I don't think that will affect tapering."

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