A positively sloping yield curve - or one where the long term rates are higher than short term - is correlated with a stronger economy. When companies are doing well, the yields on bonds (corresponding to debt issued to a company) are increased. When the opposite is true - when short term bonds pay the same yield, or higher yield than long term bonds - it is often correlated with a recession. Put another way - if you’re giving someone money for 10 years to invest, and they say they can’t make you any more than you’d get in 2 years - they probably believe something is wrong.
From Learning Markets:
A flat yield tells us that investors believe the Federal Reserve is going to be cutting interest rates. Typically, the Federal Reserve only has to cut interest rates when the economy is contracting and the Fed is trying to stimulate growth. Therefore, a flat yield curve is often a sign of an economic slowdown.
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