What does a higher yield to maturity indicate about a bond?

A higher yield to maturity (YTM) indicates that the bond is selling at a discount. Yield to maturity represents the total return anticipated on a bond if it is held until it matures. When a bond is selling for less than its face value (at a discount), the yield to maturity increases as an investor would receive the full face value at maturity, along with interest payments, making the overall return higher than if they had purchased the bond at par or at a premium.

In contrast, if a bond were selling at a premium, the yield to maturity would be lower, because the investor would pay more upfront and receive the same face value at maturity, meaning they would earn less from the investment relative to the amount paid. Similarly, if a bond is selling at par, the yield to maturity would equal the bond's coupon rate, not exceed it. Hence, a higher yield to maturity directly correlates with a bond being priced below its face value in the market.