The Treasury market was decidedly better last week, being up 4 to 5 points, and it caused other markets to do better as well.

It is still difficult to tell whether rates have peaked.

Those who believe they have will cite declining commodity prices, a slumping housing market, poor auto sales and slow Christmas retail sales as proof that a recession is close at hand and rates have turned the corner. News of the new administration's "national economic emergency" plan offered hope and further helped rates decline.

On the other side of the ledger we still have high inflation, a strong demand for short-term funds and growing monetary aggregates. And so far the Fed has shown no signs of easing in their fight against inflation.

Because of the high cost of carry -- over 20 percent -- dealers have little inventory to sell except for new issues. The markets therefore are in good technical position. And buying forces prices up quickly. In this atmosphere a rally can be started fast.

The Treasury auctions were well received, too. The average return on the two-year was 15.15 percent while the four-year returned 14.03 percent.

Two points should be made. First, so far most of the activity has been dealer-to-dealer and, secondly, no matter what Reagan does when he takes office, the battle against inflation will be long and hard, and interest rates will be volatile during 1981.

In keeping with the spirit of the holidays, we offer you a Christmas shopping guide of fixed income securities.

Investors should have as a prime consideration the preservation of their principal. Again we suggest for most investors quality bonds and no longer than 5 years.

In taxable items, very short investments would be: money market funds -- Rowe Price Reserve Fund is returning 17 percent minimum initial investment, $1,000; 6-month market certificates at banks and thrifts -- returning 15.673 percent -- minimums of $10,000; also 2.5 year saving certificates -- 12.00 percent -- minimums of $100; Merrill Lynch, Dean Witterr Reynolds and Bache Halsey Stuart are offering their 91st Corporate Income Trust -- a six-month maturity backed by certificates of deposit to return 17 percent or higher -cost around $1,000 per unit, plus accrued interest.

Also, 3- and 6-month Treasury bills will be auctioned on Monday and a 1-year bill will be sold on Tuesday. All are in minimums of $10,000.

In the short-term tax exempt area: the Fidelity's tax-exempt money-market fund is returning 5.32 percent; tax-exempt commercial paper: 15 days -- 7.5 percent, 30-60 days -- 7.75-8 percent, smallest pieces at Lechman $100,000 and at Goldman Sachs, $2250,000; 6-month government backed project notes -- 8.75 percent, in $5-10,000 minimums; 2- and 3-year top-quality bond anticipation notes are returning between 9-9.5 percent -- bonds between 1982-1985 are returning 8 to 9 percent -- $5,000 pieces.

For those investors who can afford the risk of longer maturities, the following taxable items are available: Rowe Price Corporate bond fund -- returning 13.25 percent -- initial investment, $1,000; 10 year U.S. Treasuries -- around 12.9 percent -minimums, $1,000; 30 -- year Treasuries -- 12.45 percent -- $1,000 pieces; 30-year Southwestern Bell Telephone Company debentures, returning 14.50 percent in $5,000 pieces, and something different -- preferred stock AA perpetual utilities -- around 13.45 percent return -- in $25, $50 or $100 shares.

In long-term tax exempts; closed-end unit investment trusts offered by brokerage houses are returning over 11 percent -- $1,000 plus accrued interest per unit; open-end mutual funds like Fidelity and Rowe Price are returning 9.36 percent -- $1,000 initial investment; and, finally, long AA mortgage revenue issues are returning between 11.75-12.25 percent -- $5,000 minimums.