Your understanding is indeed wrong. Bond yield is the effective interest rate relative to the current market price of the bond, and it is anything but fixed. There was never anyone actually paying or receiving 42% interest in the whole affair.
What happened is that bonds with a nominal interest rate of perhaps 10% (for simplicity's sake, and probably not too unrealistic at that point) were selling at less than 25% of their nominal value.
Basically, there were bonds that said "The Greek government will pay you 100 EUR in 10 years, and until then 10 EUR each year", which someone had originally paid 100 EUR for, but now people were only willing to pay about 24 EUR for them (which would have made the 10 EUR per year a 42% ROI). Why were they only willing to pay that little? Because at that time everyone thought that there was a pretty good chance that Greece would default and they would get neither the 10 EUR interest payment nor the 100 EUR principal in 10 years, and instead would end up losing the 24 EUR they had just paid.
What actually happened was a debt restructuring with the effect that Greece is now paying back considerably less, both yearly and at the end of the maturity period, which means that the people who paid 24 EUR for those bonds are getting a much less spectacular ROI (not sure how much exactly, but probably still pretty good, after all they did bear a considerable risk of total loss).
The takeaway? A high bond yield is actually a big warning sign when you're looking for an investment, because it means the market thinks it's a high risk investment.