The treasury yield curve is a graph of bond maturity date vs. yield for that bond maturity. The shorter term maturity bonds are influenced by the Federal Reserve short-term interest rates (RRP overnight rate). As you get father out in maturity the yield is more dependent on expected economic conditions. The market is trying to predict what the economy will be like and therefore how the Fed will react at that time. A upward sloping curve is a sign of strong economic growth while an inverted yield curve (farther out bonds are paying less) is a sign of predicted economic trouble in the future1.
Inverted yield curve
An inverted yield curve is when longer term yields are less that short-term yields (measured by 2-year treasury or 3-month bill). The market is pricing in anticipated future rate cuts based on anticipated economic weakness. Therefore, an inverted yield curve is an expectation of future economic weakness (incoming Recessions)1.
1. Wang, J. J. Central Banking 101. (Joseph, 2021).