What does a market price below par value indicate about a bond?

A market price below par value indicates that the bond is selling at a discount. This occurs when the bond's coupon rate— the interest it pays—is lower than the prevailing market interest rates for similar investments. Investors are less willing to pay the full par value for a bond that offers a lower return compared to new bonds that have higher interest rates.

When bonds trade at a discount, it reflects the market's perception of the bond's value based on current economic conditions and interest rates. As the bond approaches maturity, if it is still trading below par, it further emphasizes that the bond will need to attract buyers who might be offering less attractive yields.

While bonds near maturity can often trade at prices closer to par value, they can also reflect higher or lower prices depending on other factors, including prevailing interest rates, which makes this alternative less definitive. Similarly, a zero-coupon bond, which does not pay periodic interest, often sells at a discount but isn't solely defined by being below par value. Thus, seeing a market price below par most directly indicates that the bond is selling at a discount.