There are usually two kinds of interest rates, the short term and the long term ones. The interest paid depends on the amount of time involved in payment, at least for the sort term and long term bonds which pay dividends. This is because the risks involved in longer times of payment are usually higher than in the shorter times of payment.

This is how the term inverted comes about –higher rates for longer payment time and lower rates for shorter payment time. For instance, if I lend you ten thousand dollars with agreement to pay me back in two years, it can easily be seen that the risk involved is less than you were to pay me back in fifteen years. This present’s atypical situation and produces normal yields curve.

However, sometimes the short term interest rates exceed the long term rates. This results into an inverted yield curve.