Bank of America Introduces 6% Bond as Alternative to CDs and Treasuries

Bank of America has introduced a new 6% bond as a fixed income alternative to CDs and Treasuries. The bond is offered by the bank's preferred share options, which are considered "too big to fail." This bond offers a higher yield than traditional CDs and Treasuries, making it an attractive option for investors looking for a stable return.

Bank of America (NYSE: BAC), one of the largest banks in the United States, has introduced a new 6% fixed income bond as an alternative to traditional CDs and Treasuries. This bond is part of the bank's preferred share options, which are considered "too big to fail." The new bond offers a higher yield than traditional CDs and Treasuries, making it an attractive option for investors seeking a stable return.

The bond has a long-term maturity of 2045 and pays a 6% coupon annually. Unlike the JPMorgan Chase bond, which has a callable feature but is only callable quarterly, the Bank of America bond is callable annually. This means that if the bond is not called in 2027, investors will be guaranteed at least one more year of interest. The bond's callable feature assumes that interest rates will be lower in two years, which could impact its value if long-term interest rates rise before the call date [1].

Interest rates have been declining since late 2024, which has led to a decrease in asset and borrowing yields for Bank of America. The bank's asset yield dropped by 7 basis points to 4.60% in the second quarter of 2025, representing the fourth consecutive decline. Similarly, borrowing yields also declined, down by 4 basis points in the second quarter and 77 basis points over the last four quarters. Despite these declines, the bank's net interest spread has slowly improved, and net interest margin has remained just under 2% for seven consecutive quarters [1].

Bank of America's earnings from its lending operations have shown mixed results. Interest income decreased for two consecutive quarters before rising by $800 million to $34.9 billion in the second quarter. Interest expense also increased, but by a lesser margin of $600 million to $20.2 billion. The bank's net interest income rose by more than $200 million to $14.7 billion and has steadily increased for four consecutive quarters [1].

In terms of lending and deposits, Bank of America had a dynamic quarter. Gross loans grew by 3.3% in the second quarter, the largest quarterly increase in three years. Total loans and leases were up by 8.6% year-over-year. Deposits at the bank have grown by more than 1% for four consecutive quarters, with a 1.1% growth rate in the second quarter and a 5.3% year-over-year increase [1].

The loan to deposit ratio, which measures the proportion of loans relative to deposits, rose to 56% in the second quarter, the highest level since the start of the pandemic. However, this ratio is far below the industry benchmark, indicating that Bank of America is not overly dependent on external financing to fund loan growth [1].

Investors should be aware of the risks associated with the long-term bond. One key risk is the bank's allowance for credit losses, which is 40 basis points below the industry average. This could lead to earnings losses if loan losses increase. However, nonperforming assets have remained relatively steady over the last couple of years, mitigating this concern [1].

For fixed income investors seeking a higher yield, the Bank of America 6% bond offers a compelling option. However, investors should be mindful of the duration/interest rate risk and the bond's callable feature. If long-term interest rates rise before the bond's call date in 2027, investors may face a realized loss [1].

References:

[1] https://seekingalpha.com/article/4809192-bank-of-americas-new-6-percent-bond-fixed-income-alternative-to-cds-and-treasuries