Did they or didn't they? Has the Federal Reserve tightened a notch or not? That was the question that hung over the bond market all week. On Monday, the Fed supplied reserves when the federal funds rate (the rate of interest banks charge in lending their free reserves and a good measure of the tightness in the banking system) went above 10 1/4 percent, indicating it would like to see the rate go no higher, or at least go lower.

The bond markets hesitantly took this to mean that for now the Fed would not tighten credit. And so the markets did better, but as the funds rate persisted in trading around the 10 1/4 to 10 3/8 level, the market seesawed in tandem with the funds rate.

The Fedeeral Reserve Open Market Committee meets Tuesday to decide on the direction of monetary policy for the coming month. With accelerating inflation, a strong, although mixed economy, plus a $3 billion rise in the monetary aggregates last week, it would be tough to get a bet on Wall Street against the Fed not tightening credit at this time.

The Fed curtailed the extra quarter of a percent and the compounding of interest that the thrift instintutions could pay on money market certificates.This will not hurt savers much, especially if short rates remain high. The thrifts can pay the extra quarter of a percent if the 6-month-bill average remains under 9 percent.

Other short investments will become more attractive now, especially six-month Treassury bills and the money market funds. Actually these funds allow a smaller amount to be invested and offer liquidity, and some permit checks to be written on the investor's account. Many are paying 9 1/2 percent to 10 percent on their shares.

Becuae funds eventually will be pulled away from the thrifts, which are the backbone of the housing industry, financing by the Federal National Mortgage Association and the Federal Home Loan Bank will increase to take up the slack. This means that the yield spread should widen in favor of agencies over Treasuries. At present, agencies return 10 to 30 basis points more yield than Treasuries. That spread was as wide as 100 basis points during 1974. It has been so narrow that the Treasuries returned more than agencies.

The municipal market absorbed an avalanche of new issues this week and maintained a firm tone. A triple-A revenue bond whose entire energy output has been purchased by the government returned 6 3/4 percent in 2012. The $300 million A-rated Texas Municipal Power Agency returned 7 percent in 2012, while the double-A Lakeland, Fla., water and electric revenue loan yielded 7 percent in 2006.

This week will be quality week in the tax-exempt market. California, Nevada, Massachusetts and Oregon will all be borrowers. A $20 million Maryland CD A single-family mortgage revenue loan will be offered. However, do not be too quick to jump in because a $50 million Maryland CD A multifamily issue will follow within a few weeks.

The corporate market balloons this week with the $450 million triple-A Southwestern Bell Telephone issue, two Ford Credit issues and other offerings.

The Treasury will roll over its 2-year note issue on Wednesday. Minimum denominations of $5,000 will be available. The return should be between 9.76 and 9.86 percent. Subscriptions should be entered at the U.S. Treasury or any of the Federal Reserve banks or their branches no later than 1:30 p.m.