While the country waited during the week for President Reagan's speech, the bond market gyrated wildly and by Thursday night, long Treasuries had given back half of their recent gains. By Friday, the bond market had declined 1 to 2 points, with the Treasuries falling to new lows. Until Congress acts one way or another on the president's proposals, the markets will be in a vacuum, and the markets abhor a vacuum.

On Monday when two new corporate issues were initially priced, they were well received. But as the Treasury market declined, the buyers withdrew and ensuing new issues met stiff buyer resistance. Issues such as Southwestern Bell Telephone fell three points once freed for trading. Several other issues of size suffered a similar fate and the market deteriorated in the face of $1 billion in new offerings.

Other factors contributed to the curtailment of the rally, however. The fact that a correction was due from the rapid price increases, the announcement of the new Treasury issues, a smaller-than-expected reduction of the discount rate surcharge and, finally, the Federal Reserve's draining of reserves from the banking system all helped to unglue the market and initiate the retreat.

The interesting story, though, is the direction of interest rates by market sector. With the cost of funds to commercial banks falling, the rates at which banks relend to their customers also fell. Because free reserves in the banking system were readily available to the banks, the federal funds rate strayed between 13 1/2 percent to 15 percent. In the beginning of September that rate was above 17 percent.

Banks could also obtain money by issuing certificates of deposits at some 200 basis points lower than on Sept. 1. As a result of the cheaper money, the banks lowered their prime rates to highly rated borrowers, and brokers' loan rates to the investment community.

At the same time, long bond rates were headed in the opposite direction. Long Treasuries that were returning 14.17 percent when the market opened Monday were yielding 14.99 percent by Friday evening's close. The new Southwestern Bell issue had risen 82 basis points to return 17.57 percent. This points up the dilemma in the marketplace today.

Because long-term interest rates are so high, corporations turn to the commercial paper market or to commercial banks to borrow. Currently there is $160 billion of commercial paper outstanding, up from $124 billion at the end of 1980. The paper loans are basically very short loans generally not exceeding 30 days. Consequently the paper borrowers must roll or turn over their paper frequently. As a result, they are never sure what their interest rate will be, nor are they able to make long-term commitments -- such as building a plant -- with short-term funds. Their balance sheets become unduly heavy with short-term debt and their financial positions are strained. This is the position in which most corporations find themselves today. In fact, through the first seven months of the year, 33 commercial paper issuers have been downgraded by the credit-rating agencies.

This is why it is so important for long rates to decline enough to open the long capital market to corporate borrowers.

The money market funds, whose assets of $160 billion have more than doubled in size since the beginning of the year, have been the main buyers of commercial paper. A problem could arise for the paper market if their were a sudden and large withdrawal of funds from the money market funds. It would force the lower-rated paper borrowers into the banks, which could put a strain on the banking system. This is one reason everyone is apprehensive about the advent of the All Savers Certificates Oct. 1. Although analysts see no problems, they still are uneasy about the potential drain of money from the money market funds. All of this, again, points up the importance of getting the fixed-income market back on its proper footing, and soon.

The Treasury will sell a 20-year bond on Wednesday, in minimum denominations of $1,000. Lebherz has 21 years' experience in fixed-income investments.