The bond markets were dominated last week by the Treasury's successful $28 billion quarterly refunding. Featured in the refunding was a 3-year note that came at an average yield of 7.94 percent, a 10-year note with an average return of 8.74 percent and the 30-year bond whose average return was 8.89 percent.

When the Treasury finances with a volume as large as $28 billion, the other bond sectors traditionally turn the playing field over to the Treasury. This is as it should be. But regardless of the refunding, the volume of new municipals has been painfully thin and shows no signs of improving.

Through the first seven months of 1987, 50 percent of the new-issue volume of $60.9 billion has been issues "refunding" older outstanding issues, as opposed to new financings for capital improvements.

This means that only $30 billion of new capital improvement issues were marketed through July. And with interest rates higher now than during the earlier months of the year, it is highly unlikely that refundings will be much of a factor during the remainder of 1987.

To carry this dismal story further, if you annualize the new capital financings that have occurred so far, the new-issue volume for capital improvements alone will only be about $52 billion for all of 1987, a very low figure.

It is obvious that the Tax Reform Act of 1986, with its caps and prohibitions, has done its job in reducing the issuance of municipal bonds. Only time will tell how realistic the goals of the act were and how much revenue the government will actually save. Still, in looking at value in the municipal market, a couple of situations stand out.

A look at the 30-day new issue calendar reveals that there are no AAA-rated general obligation bonds or state GOs scheduled. Currently, the yield spread between AAA GOs and A-rated revenue bonds are at their average spread for the past six months, and narrower than the average spread for the past 12 months. With no new AAA GOs coming near term, that spread should narrow even more.

This presents investors with the opportunity to upgrade their holdings by swapping into AAA GOs from their A-rated revenue holdings, with a minimum giveup in yield.

Concurrently, in the A-rated revenue sector, there are no electric revenue issues on the 30-day calendar. The yield spread relationships between the A-rated housing and hospital issues versus the electrics is narrowest in both the six-month and 12-month time frame. Usually the housing and hospital issues yield more than the electric issues.

These narrower spreads allow the investor to move from a housing or hospital issue into perhaps a better-producing electric revenue issue, with a minimum giveup in yield. In fact, with no new electrics scheduled, it's possible that an "even yield" trade could be realized, which if possible, should automatically be done.

These types of trades will allow you not only to upgrade your holdings, but possibly to create a tax loss as well. Certainly worth investigating from both aspects, even in a slow market.

James E. Lebherz has 28 years experience in fixed-income investments.