We were treated to an excellent new-issue market during the past week. Corporate and municipal bonds sold so well that the underwriters almost forgot the red ink they sustained two weeks ago.

But two facts were notable. First, where a single-A corporate sold at 10.95 percent two weeks ago, the single-A Columbia Gas Systems loan sold last week at 11.85 percent while similar-rated Arizona public service bonds returned 12.20 percent.

Similarly, a few weeks ago, two tax-exempt revenue bonds returned investors 7.25 percent (Tarrant County) and 7.30 percent (Salt River) in their distant maturities.

Last week Puerto Rico Power revenues and Vanceburg, Ky., hydroelectric revenues returned 9 percent tax-free income, New York Power Authority returned 8 percent, Otter Tail Power Co. pollution-control bonds returned 8 1/8 percent, and New Jersey and Virginia mult-family housing bonds each returned 8 1/4 percent.

The second fact was that there was no secondary market follow-through as there usually is when new issues sell so well. This was due to the desire of dealers to do riskless business. They would buy bonds from a customer if they had the sell side already lined up.

Consequently any outright selling by customers quickly depresses the markets as dealers drop their bids for fear of taking on inventory. As one trader said, "The markets are illiquid at this time." Discount bids are normal, so dealers try to keep a low profile unless they have both sides of a trade.

The money markets were flooded with funds earlier in the week, and short money market rates fell. Arab money was reported buying Euro certificates of deposits at 14 1/4 -- plus percent, while domestic funds bought our CDs.

However, all of this came to an abrupt halt when the Fed sold Treasury bills on Thursday to drain reserves from the banking system. This in itself is a form of tightening. Short rates began rising, and long Treasuries fell more than a point.

The money supply figures showed another sizable increase which did not help at all. Prices continued to fall on Friday.

Despite the good issue reception, the week ended gloomily with indications of higher interest rates yet to come. The West German central bank even sold dollars when the dollar rose in foreign exchange trading.

The Treasury will auction $3.9 billiion of two-year notes Tuesday. They will come in minimum denominations of $5,000. A price guesstimate would be 12 percent to 12 1/4 percent.

Long municipals should trade in the range of 8 percent to 9 percent until credit is tightened further. It would pay buyers to pick out certain quality issues that they would like to own and begin nibbling at these various offerings as rates continue to rise.

Short term money market funds are still the safest way to protect your principal, earn a high rate of return and maintain liquidity.