What is a key feature of bonds trading at a discount?

Bonds trading at a discount have a key feature where the yield to maturity is above the coupon rate. This situation arises because the bond is being sold for less than its face (par) value. Investors demand a higher yield when they purchase the bond at a lower price to compensate for the fact that the bond's stated interest payments (the coupon) will be lower than prevailing interest rates. As a result, the yield to maturity, which accounts for the total return an investor can expect if the bond is held until maturity—including both the coupon payments and the capital gain realized when the bond matures at its face value—exceeds the coupon rate. This characteristic is fundamental to understanding discount bonds and how market interest rates affect bond pricing.