Trust me, some of the head bolts go through into the water jacket so it's perfectly normal for water to bubble out of the head bolt holes if you haven't drained the block (something you should've done). Also, the 1986 FSM on page 6A2-17 under the heading Cylinder Head Install or Connect para 3 states:
"Coat cylinder head bolt threads with GM 1052080 Sealer, or equivalent, and install bolts". If the bolts did not penetrate into the water jacket there would be no need to do this.
[This message has been edited by Bloozberry (edited 07-01-2012).]