In retrospect, the bond markets had so many cross currents this past week that it was hard to follow them. The 2-year Treasury note auction came about 30 basis points (a basis point is one-one hundreth of a percentage point) richer than anticipated (an average return of 11.44 percent) and helped give further impetus to the rally. One month ago the 2-year note auction produced an average return of 15.01 percent.

The Treasury's year bill auction produced an average return of 10.44 percent, down 400 basis points from a month ago.

In the tax-exempt area, the short-term New York State TRANS Issue finally was marketed. Three weeks ago when the issue originally was scheduled to be offered, the price talk was credit. So far, this rally has been a recession-inspired rally. The present rally will need the Fed's help if the current negative yield curve is to become positive.

By mid-week the market was tired, in fact it was way ahead of itself and where it should be in relation to what we know about the present recession. Long Treasuries were off about 1 1/2 points by the end of the week. Short rates declined further as investors sought liquidity because of the Iranian affair.

To take advantage of the colossal drop in rates, corporations and tax-exempt issuers are preparing new offerings. Consequently, these calendars have grown rapidly. In the corporate area $225 million RCAs, $300 million Atlantic Richfields and $400 million Illinois Bell Telephone 10.50to 11 percent. The top yield was 8.25 percent when the $2.8 billion issue finally sold.

A small offering of HUD project notes sold with a reoffering price of 6.25 percent on the bulk of the loan. A month ago a similar item returned 8.25 percent.

With all of these yield changes we still have an inverted or negative yield curve. That is, the return on the 3-month Treasury bill is considerably higher than the return on the 30-year Treasury bond. A month ago that spread was just over 400 basis points in favor of the short bill. Now the spread is just over 300 basis points.

During 1970 and 1974 when the curve switched from a negative to a positive position (the short maturities return less than the long maturities) the price changes were induced by the Federal Reserve's easing of and but a few of the new issues that were just announced. This build-up was another reason why long bond prices eased.

Interestingly enough, as the Eurobond yields have fallen in Europe, several U.S. corporations have rushed to sell new issues in that market. Portland General Electric, J. C. Penney, GTE Finance, General Motors Acceptance Corp. and American Medical Co. recently sold there. The beauty of the Eurobond market is that new issues can be brought to market quickly (without SEC filing) and the terms of the issues are quite favorable to the issuer.

This week the Treasury will announce the terms of its May refunding. It could total around $7 billion and will provide another test for the markets.

All in all, it would seem that the rally has come to a halt. As the volume of new issues grows, we will learn if the recent gains will be sustainable.

So far the very short commercial paper and Treasury bill rates have continued to decline.