Bond market pounding continues ...

It was a bad week for bonds, with key support around the 109 level cracking. What's going on? Traders are finally pricing in inflation risk ... real, genuine inflation risk. Up until now, long-term rates have failed to move up as much as short-term rates. Traders were operating on the assumption the Fed's rate hikes would "bite" -- slow the economy enough that long-term bonds would do okay.

But last week, the Fed finally acknowledged that it's more than just oil prices driving inflation higher. That's putting real fear in the long end of the curve. So is the ongoing rally in gold, oil, copper, and other commodities this morning.

This long bond futures chart shows just how far bonds could fall IF this is a new leg down. Next major support isn't until the 103 level. As always, we'll see what happens.