Updated from 11:26 a.m. EDT

The Treasury market crumbled Friday and the 30-year bond yield breached 5.0% for the first time since 2004, as strong employment gains and sky-high commodity prices fueled inflation fears.

Next week, the market will get a little bit of everything, with readings on the U.S. budget, the trade balance, business inventories and retail sales all on the docket. Capacity utilization and industrial production reports will also be released.

Bond prices caved to worries that economic strength could mean more rate hikes from the Federal Reserve, or that the Fed may even be behind the curve on inflation. The 10-year yield climbed above 4.90% to its highest level since June 2004.

The benchmark 10-year note ended the session down 14/32 to yield 4.96%, while the 30-year bond tumbled 29/32 to yield 5.04%. Bond prices and yields move in opposite directions.

The two-year edged lower 2/32 to yield 4.88% and the five-year fell 7/32 to yield 4.89%.

As economic activity ramps up and inflation expectations rise, most central banks will raise interest rates in order to slow economic growth, by making it more expensive to borrow money. The Fed has raised its benchmark fed funds rate 15 times since June 2004, in an attempt to keep the inflation genie in the bottle. This has brought the fed funds rate to 4.75% from 1.0%.

Interest rate futures show 100% odds that the Fed will lift the rate to 5.0% on May 10, and 44% odds for an increase to 5.25% in June. The market has priced in more certain 84% odds that the rate will hit 5.25% by August.

Market participants are worried about whether the Fed will raise rates too many times and bring the economy to its knees.

Not so, says Frank Bifulco, a private bond investor and former fixed-income strategist at Deutsche Bank.

"Nominal GDP growth is still strong relative to the 10-year Treasury," says Bifulco. "Bottom line, Fed monetary policy is not restrictive enough."

Michael Darda, chief economist at MKM Partners, agrees, adding that investors should sell bonds on any strength "because the fundamentals are terrible."

"If you subtract inflation from bond yields, you see that the real yield is actually very low compared to what's normal throughout history," Darda says. "And if you subtract taxes and take inflation out, yields are barely positive or even negative across entire curve. ... After taxes and inflation, bonds pay nothing or less than nothing."

On the economic front, employers added 211,000 workers to payrolls in March, the Labor Department said Friday, vs. a forecasted 190,000. This makes the first quarter of 2006 the best start to the year for hiring since 2000. Although the number was greater than the consensus estimate, recent strong employment data had ramped up expectations that the number would be strong.

The unemployment rate fell to 4.7% from 4.8% in the previous month and vs. expectations for the rate to hold steady. Hourly earnings edged higher by 0.2% vs. estimates for a 0.3% gain.

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