But the curve can change its shape, and when it does, it's usually an indication something big is happening. For instance, when the Fed raised short-term interest rates sharply in 1989 to cool off an overheated economy, the curve became inverted -- that is, the longer the maturity the lower the yield. And at other times, when the economy is weak and the Fed cuts short-term rates significantly to give it a boost, the curve may have a steep upward slant, with 30-year bond rates far higher than those on three-month bills.

Both private analysts and Fed officials say the curve turned concave over the past two months -- the lowest yield yesterday was 5.32 percent on two-year Treasuries -- because most investors and traders expect the central bank soon to lower its 5.75 percent target for overnight interest rates. Many analysts are betting the action will come at the next Fed policymaking session on Dec. 19.

The longer end of the curve dropped steadily over the past year, as more and more investors became convinced that the Fed would be successful in its effort begun early in 1994 to cool off a booming economy and keep inflation under control -- all without tipping the nation into recession. However, after raising its target for the federal funds rate -- the interest rate financial institutions charge one another on overnight loans -- to 6 percent from 3 percent in the year ended last February, a cautious Fed has since only trimmed the fed funds rate by a quarter of a percentage point.