Interest costs to the government, as measured by weekly Treasury auctions of 13-week and 26-week bills, continued a two-month decline yesterday. The rate of decline was less than in recent weeks, however.

In the bond market, meantime, prices tumbled sharply and interest rates rose. Bond traders cited worries about the heavy volume of government securities coming to market this week--including a $3.25 billion, 62-month Treasury note today and $4.4 billion of Farm Credit debts.

As bond prices fell (and interest rates rose), owners sold to lock in profits they had made already. Losses of as much as 2 1/2 points were noted in taxable and tax-exempt bond sectors in what was described as a dealer and retail liquidation.

At the T-bill auction, the average discount rate on 13-week bills fell to 10.56 percent from 10.693 percent a week earlier. The investment rate, or equivalent coupon-issue yield, was 11 percent compared with 11.14 percent for the previous bill auction a week ago. It was the lowest since 10.46 percent on Sept. 22, 1980.

For 26-week bills, the discount rate was down to 10.915 percent from 10.972 percent. Equivalent coupon-issue yields declined to 11.71 percent from 11.78 percent a week ago and the lowest since 10.824 in September 1980. Treasury sold $4.7 billion each of the 13-week and 26-week bills.

Discount rates understate actual investment yield because some of the price is refunded at the time of purchase, in effect.

Separately, the government set maximum rates on "small saver" certificates of deposit at savings institutions at 12.55 percent, down from 13.95 percent in the previous two weeks. The rate for banks will fall to 12.3 percent from 13.7 percent, based on average yields for comparable government securities. New rates for these CDs are effective today and last for two weeks; the "small savers" certificates are not to be confused with one-year All Savers certificates, on which new rates are set with monthly auctions of 52-week Treasury bills.

The new ceiling for six-month money market certificates is 11.779 percent at banks or savings institutions for CDs in denominations of $10,000 or more, effective immediately.