The bond market witnessed a substantial rally during November. Short rates continued to decline all through the month, while the main rally in long bonds occurred during the past seven days. No question that rates have peaked for 1979, but next year is another story.

During November, the six-month Treasury bill has declined 119 basis points (a basis point is one-hundredth percentage point), three-month commercial paper dropped 345 basis points and the all-important federal funds rate (the interest that member banks charge each for the use of their excess reserves) plummeted by more than 300 basis points.

With a deteriorating economy, as evidenced by recent economic data, it was felt that the demand for funds would decline and inflation eventually would abate. In view of the continuous decline of the short rates, a slowing economy and the lack of inventory on the bond dealers shelves, the rally finnally spilled over into the longer maturities. Within a few days, long Treasuries were up by more than 4 points before hesitating at all.

If problems with Iran are settled quickly and peacefully, the markets should continue to do well for the remainder of 1979. The new-issue calendar is declining, too. By mid-December, institutional buyers will begin closing their books for the year, so the markets could easily languish for the rest of December. But there will be many hurdles to be crossed in 1980.

This week the State of Oregon will offer a gigantic $300 million general obligation issue. Oregon's issues are rated AAA by Moodys, but unfortunately this issue will sell cheaply because it is so large and because Oregon comes to the market so frequently. This issue will set the tone of the municipal market next week and, if it is priced too aggressively, it could depress the tax-frees for some time to come.

The $500 million triple A-Southern Bell Telephone issue sold last week with a return of 10.93 percent. Single-A bonds like Dayton Power and Light returned 12.224 percent.

In the tax-exempt area, the long Houston double-A water revenue bonds returned 7.40 percent, while the BAA Delaware Solid Waste revenues were priced to return 9 1/4 percent. Long Virginia Housings returned 8 1/2 percent.