[jonbarker]

In general, when longer term bonds have higher yields, this is investors saying "compensate me for the opportunity cost of not being in stocks or riskier assets over that term". What matters is that the yield curve goes up as the maturity date goes out in the future, signaling a healthy outlook for risker assets. If the yield curve inverts, this can be interpreted as investors saying "the longer term outlook for riskier assets like stocks is not good, so I don't need compensation for longer term less risky bonds, just get me out of the market." It is a remarkably reliable indicator of future trouble for stocks.

[babaganoosh89]

Not really, short-term interest rates are set by the fed and long-term interest rates are determined by bond investors betting what the avg interest rate will be over that time period. So when the yield curve inverts, investors are betting that the fed will have to cut rates in the future (because of a recession or other reasons), making the long-term interest rates lower than the current short-term rates.

[sokoloff]

I think you might be looking at a different side of the same coin as GP.

Betting that the Fed will have to cut rates because of a recession is a bet against equities and other risk assets.

[jonbarker]

But the biggest of those bond investors is the fed. That's actually how they 'set' rates, by doing open market operations in which they buy and sell bonds of varying maturity dates in order to adjust the supply of money. They never want the yield curve to go inverted because it means the growth prospects for the economy are no longer there.