Over 700 finance terms, Shmooped to perfection.
Disney issues a bond with a 7% coupon. Then one day nobody watches sports anymore and ESPN's ratings go to zero. Suddenly Disney's ability to repay its bonds is suspect. There is credit risk. The bonds "trade down" on the open marketplace or at a discount of just 90 cents on the dollar. The new yield on them is .07 / .9 = 7.77%. These are now discount bonds because they trade "at a discount" to their par value of 100 cents on the dollar.