The yield curve is a line graphing the interest rates of government bonds across different maturity lengths. Under normal conditions, the curve slopes upward, meaning an investor receives higher interest for locking their money up for 10 years compared to 2 years.
An inversion occurs when short-term yields rise above long-term yields. The most closely watched spread is the 10-Year Treasury minus the 2-Year Treasury. When this spread goes negative, it implies the bond market expects central banks to slash rates in the future due to an impending economic slowdown.
Historically, a sustained inverted yield curve is one of the most reliable leading indicators of an impending recession.