In just the past month, bond prices have enjoyed a spectacular rally from their depressed levels--a surge that would be roughly equivalent to a boom in stock prices measured by a gain of well over 100 points on the Dow Jones index. The reason, of course, is that interest rates have plunged--in some cases by as much as 5 full percentage points--as a consequence of a deepening recession and lower inflation rates.

Higher bond prices and lower interest rates are the classic earmark of economic recession. As business borrowing recedes, banks and other lenders are forced to charge lower interest rates. In turn, that means that old bonds, paying a better yield, are worth more.

So far--although this varies according to the kind of bond involved-- bond prices have gone up about 15 percent in value, which still leaves them far below the levels prevailing in 1979. That's when the bond market started a long collapse and interest rates began their climb to recent record levels.

The spectacular upward ride of interest rates was a consequence of strong inflationary pressures (in part induced by the oil cartel), plus the effects of a significant policy change at the Federal Reserve Board. Beginning in October 1979, the central bank adopted the monetarist tactic of focusing exclusively on controlling the supply of money, while ignoring the impact on interest rates.

It was a desperate move to deal with a genuine financial crisis: the U.S. dollar was sinking rapidly against European currencies at a time of diminishing confidence in the Carter administration, while the price of gold was soaring--eventually going over $800 an ounce. Continued under Reagan, the monetary policy eventually brought about record high interest rates, recession, a recovery in the dollar, and a collapse in the price of gold from the $800s to the $400s.

What happens now? How deep does the recession go? How low will interest rates go? Will there be a turnaround in interest rates in 1982 that will induce yet another collapse of the bond market? These are the questions being debated in financial markets today--and you shouldn't believe anyone who pretends to have all the answers.

Those in charge at the Federal Reserve, while hoping for the best, don't see much light at the end of the tunnel. The Reagan administration opted for the worst of all worlds by pursuing an easy fiscal policy (sharply lower taxes plus defense spending increases that exceeded the civilian budget cuts) at the same time it endorsed the strict, tight monetarist policy.

Quite clearly, Fed Chairman Paul Volcker fears that unless better progress is made in moving toward a balanced policy that relies more on fiscal measures and less on monetary controls, the interest rate cycle will ratchet up again. Those who know Volcker's views say he stresses as crucial: reductions in the federal "entitlement" programs and the defense budget that David Stockman has been trying to sell inside the administration; restraint in major wage settlements next year; and avoidance of protectionist trade measures that would feed inflation.

And beyond that, it is clear that Volcker is pushing hard for a major increase in taxes (not to take effect next year) that would offer real hope of averting what now looks like a fiscal 1984 budget deficit in the neighborhood of $100 billion. A tax increase will require action by Congress prior to the 1982 election.

"How do you get that out of a political mine field?" asks a realist. "If Reagan asks for new taxes, the Democrats will be happy to offer a reduction in the Kemp-Roth goodies instead. And that, Reagan won't buy."

In the best of all possible worlds-- given current circumstances--there would be a further downward drift of the consumer price index in the first part of next year induced by stable food prices and an edging down of mortgage rates. This might encourage more modest wage settlements. The prospect of a more stable wage-price environment, along with a further dip in interest rates, might also help nudge productivity higher.

Lower interest rates also would help ease business costs, save the government money in financing the debt and engender more confidence that inflation would stay under control. That would encourage long-term interest rates to come down, stimulating business expansion.

"That's what we'd like to see," says a Fed policy-maker, acknowledging that none of it is likely unless there is an effort by Reagan and Congress to raise more tax revenue for fiscal years 1983 and 1984. Without an offset to what was given away by the Kemp-Roth bill and accelerated business depreciation, the Fed sees the nation coming out of recession next year only to face a new cycle of high interest rates and depressed bond prices.