  We have studied the C14 hexagonal Laves phase of YbAg$_2$ at normal
conditions and under external pressure up to 19 GPa by the time-differential
perturbed angular $\gamma-\gamma$ correlation spectroscopy (TDPAC) using
$^{111}$Cd probe nuclei. Under pressure the valence of Yb undergoes a two stage
transition from 2.8 to 3. The two stage scenario is characterized by two
distinct quadrupole frequencies of $^{111}$Cd probes in silver sublattice,
monotonically increasing with pressure and saturating at 8 and 16 GPa. Our
experimental data are compared with the density functional studies of the
electron band structure of YbAg$_2$, whose results are used for discussion and
interpretation of these experiments. We have found that there are two different
electric field gradients at inequivalent silver sites and that $4d$-states of
silver participate in metal bonding, allowing for the formation of the
hexagonal Laves phase.
