The market fluctuated through the week, taking it's direction from the level of the federal funds rate. This is the rate that member banks of the Federal Reserve system charge for the use of their excess reserves. Most other money market rates are pegged off of this rate too. Accordingly, the funds rate influences the price that bond dealers must pay to carry their inventory and determines whether or not they continue to hold or to sell their inventory.

But the market was somewhat encouraged, because it appears that the Federal Reserve may have eased their credit restraint. The question is, how much, and why didn't the funds rate fall?

That the Fed has eased seems apparent from the declining level of net borrowed reserves and from the level of excess reserves that has been growing steadily since mid-June. You would expect that an increase in excess reserves would lead to reduction in the federal funds rate. However, occasionally the distribution of these excess reserves can be skewed unevenly and are not available to the entire system. In that case the funds rate will remain high if the demand is there.

The big point is that some easing has occurred, but more than likely the Fed will move very slowly in supplying more reserves to the banking system. This is especially true since the money-supply figures released Friday showed a much larger gain than anticipated.

The interest rate levels currently available on both taxable and tax-exempt bonds are at near-record levels. Buyers should be sure that the bonds they are purchasing have good call protection and cannot be called away by the issuer once rates decline.

Most long municipal bonds have at least 10 years of call protection before they can be paid off by the issuer. The recent flood of three-year paper with returns of 9 percent or higher, has only one year of call protection. So if interest rates decline substantially in the next year, the chances are that these short issues will be refunded. Consequently, it is wise to view these obligations as one-year bonds.

Long industrial bonds have 10 years of call protection, but most of these issues have a sinking fund that may begin retiring a portion of the bonds after the issue has been outstanding for 10 years.

Railroad equipment trust certificates have serial maturities from one to 15 years and are noncallable. So are Treasuries and agency issues, except for the very long bonds. These are callable five years prior to their maturing.

Public utility bonds bear close scrutiny because of their various features. Most are nonrefundable for five years with debt at a lower interest cost.

However, a five-year nonrefundable bond may be called before the five years have expired if the issue is paid off from funds other than a new debt issue with a lower interest cost. Then they are paid off at a high premium that declines as the years go by.

Some of the utility bonds issued in the mid-1970s had "maintenance and repair" clauses that allowed them to call in these five-year non-refundable bonds before the five years had expired. Check to see that this cannot happen to any bond you buy today.

Debt issues of the Bell system are simply noncallable for five years. They may not be called at all during that period.

Recently, some lower-grade BAA/BBB-rated utility bonds were sold with record yields for that type of paper. The Philadelphia Electric Co. returned 17.8 percent, the Long Island Lighting Co. 17.6 percent and the Ohio Edison Co. 17 percent. If you can handle the risk, these bonds are non-refundable for five years. With that kind of a return you get your money back in interest in 4 1/4 years.

The Treasury will sell a two-year note on Wednesday, in minimum denominations of $5,000. HUD will sell $588 million of tax-exempt notes on Tuesday that will mature in November of 1981. They should return 8 percent of cheaper.