I guess my first thought is to just keep your head. If you want to talk about it, just get them together but in a calm and non-judgemental way and perhaps ask how this begun and why they're doing it. Part of that discussion can be making sure that they're safe and discreet if they do get together. Perhaps part of that discussion can also go over that they may want to make sure that getting with each other doesn't get in the way of their exploring relationships with other people as well.

Chances are that it's straight up sexual experimentation and they are the most convenient to experiment with each other. As for your questions:

Do I punish them?

I don't think you should at this point.

Do I talk to them?

I definitely think you should in a calm, non-judgemental way. Just ask why they are doing it and how it started. Remind them to be safe and discreet, and also that they shouldn't let what they're doing get in the way of exploring other relationships with other people.

Do I let it go on? Am I a bad mother for even thinking of letting it continue?

I guess that's up to you and what they say when you talk. If it looks like they're both doing it willingly, they know what they're doing, and are acting safe and healthy about it, and your only negative reaction is "ewww" then I'd kinda be inclined to say, yeah, let them keep doing it.

However, if you feel something else is going on like one of them is coercing or pressuring the other into doing it, then that would be time to definitely intercede.