The year is just about over, and it has been a remarkably stood year for municipal bonds. A record volume of bonds has been issued, and interest rates have fallen to their lowest average level since 1979.

Much of the bond volume was caused by this low level of rates, and a record amount of refinancing was done. The fall in rates resulted from an easy monetary policy coupled with a slack economy and low inflation, all conditions that may persist well into 1993. God days for the bond market are not over.

The American economy, to be sure, seems to be picking up, and the Commerce Department last week reported that the gross domestic product grew at a 3.4% rate, the best showing in almost four years. Still, it's hard to see how business activity will really take off in the months ahead as the economy worldwide remains in a slump. Without shortages and an economic pickup, prices will remain under control. No one is worried about inflation.

This is the reasoning that prompted the rise in bond prices last week, a rise that reduced the yield on long-term Treasury bonds to their lowest level in two months. Bond analysts began to wonder whether the 30-year bond, which moved down to 7.34% on Tuesday from 7.42% the preceding Friday, might press through the tough 7.25% level that has proved such a barrier up till now.

The business cycle dating committee of the National Bureau of Economic Research met last week and made a pronouncement that the most recent recession in the economy, which had begun in July 1990, had ended in March 1991, a month or two or perhaps three sooner than many economists had guessed. That means the economy has been in an expansion for 21 months. an expansion that has not hurt the muni market at all. The Bond Buyer's 20-bond index has dropped from 7.14% at the end of March 1991 to 6.19% last week, an impressive performance during a so-called business recovery.

This expansion, of course. has not been all that red hot up till now. If it expands now at a rate somewhere between 3% and 4% without touching off new inflationary pressure - the most likely outlook, in our view - interest rates may very well stay relatively stable near current levels. It's hard to build a case for still lower rates, which makes the 7.25% yield on long-term Treasury bonds a valid resistance point, but there's not much reason for rates to rise.

If Bill Clinton comes through with a believable long-term program to reduce the deficit, the bond market may become so encouraged that it will break through - but that's a long shot. More likely, the market will keep rates relatively low and not push them down dramatically. That's our view at yearend, and it means plenty of room for heavy muni bond volume this winter.

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