The rally that had been going on since the beginning of the year came to a halt last week. The various markets surrendered some of their gains. Treasuries gave back the most; the municipal market, the least.

Several things came together during the week that turned the tide although the technical positions of the markets still remained strong. That is, little supply was being offered and a great deal of money was waiting to be invested.

There seemed to be a realization that the basic factors affecting interest rates, namely inflation, the strength in the economy and the direction of the dollar were all running counter to any reasons for a sustained rally.

Energy Secretary James R. Schlesinger brought the picture into focus with his remarks on the possible problems with Iranian oil. He raised the specter of fuel shortages, increasing oil prices and a worldwide economic slowdow. The cancellation by Iran of the $8 billion in military orders from the United States gave a severe jolt to hopes of narrowing the balance of payments deficit.

The realization that all the indices for measuring inflation were going to rise over the next few months had a sobering effect on the market. Food prices, precious metals and other raw material prices continue to skyrocket.

The dollar declined most of the week, both from the implications of the Iranian situtation and from our own inflation problems -- as was evidenced by the rise in the producers price index at an annualized rate of 15.6 percent.

The continued strength in the economy was borne out by corporate profits being up about 25 percent in the fourth quarter, by retail sales remaining strong and by consumer credit rising to a record level.

A light municipl calendar limited activity last week. In spite of this, the market gave back about a quarter of its recent gains.

The calendar does begin to build this week with the $133 million State of New York issue plus a couple of sizable revenue issues.

The $100 million triple-A Texas Power and Light issue failed to sell at a 9.42 percent return and broke down to a 9.53 return. However, the $300 million A-rated Pacific Telephone issue cleaned up with a 9 7/8 percent return.

The Province of Ontario issue coming this week is non-callable for 15 years, which is an attractive feature.

The Treasury sold its eight-year maturity at an average return of 9.01 percent and its long bond at a record high of 9.03 percent. The public shied away from both offerings, especially the bond. As a result, most of these issues are in the dealers' hands and must be redistributed to investors.

In the face of the new pessimistic attitude, this could prove difficult and rates could rise further. In fact, the long Treasuries have given back all of their rally gains, although the short maturities are away from their earlier highs.With these changes, the yield curve has become flatter since the end of December.

In view of the changing market sentiments and uncertainties the place to be is short and liquid. Money market funds are still super. Since many brokerage houses have their to see if one is available.