Bank of America Preferreds' 6.6%: Real Income, Not a Real Bond

Bank of America Preferreds' 6.6%: Real Income, Not a Real Bond

Six-and-six-tenths percent is the kind of number that makes an income investor stop scrolling. It is what Bank of America's preferred shares are offering against roughly 4.7% on a 10-year Treasury — about $6,600 a year on every $100,000, versus $4,700, with the same bank's name attached to both. The pitch writes itself. The investor's job is to find out what the extra two points are actually paying for before mistaking a preferred for a better Treasury.

Where the 6.6% comes from

Start with a concrete example. Series OO is Bank of America's newest fixed-rate-reset preferred: it pays 6.625% through the end of April 2030, and on May 1, 2030 the rate either becomes five-year Treasury yields plus 268.4 basis points or the shares are redeemed at par. The bank raised $3 billion in it during 2025, and the quarterly checks started in August 2025. Bought near par, that is a current yield right around the headline 6.6% — at the top of the bank's menu, where most series currently sit closer to 6%. The scale is worth noting: Bank of America's whole preferred book, roughly $26 billion of it, carries about $1.7 billion a year in dividends — a near-6.6% average that the bank is itself paying out.

The payout is earned

So ask the question that decides everything: where does the cash come from, and is the payout earned? In the first quarter of 2026 Bank of America earned about $8.6 billion before preferred dividends and paid out $429 million to holders — roughly twenty times coverage. Full-year 2025 net income was $30.5 billion, and the second quarter of 2026 alone produced $9.1 billion. The common equity tier 1 capital ratio regulators watch stood at 11.2%, comfortably above minimums, on $202 billion of capital. This is earned income from a bank that is not under capital strain.

The strain test in the record is older and more telling. In 2008-09, against the worst banking crisis since the Depression, Bank of America was forced to cut its common dividend from $2.56 a share a year to four cents — a cut that ended its "dividend aristocrat" standing — and its common paid only a token through 2009. Preferred payments kept flowing. Academic work on that period records that Bank of America was still making its dividend payments at the end of 2009. Preferred holders collect before common holders in the capital stack, and in that crisis the ordering was honored.

What the extra two points pay for

If the bank can obviously afford the coupon, why does the market charge 6.6% when a Treasury pays 4.7%? Because these are not bonds, and the gap is the price of structure rather than doubt about credit. Three facts do the work. The dividends are discretionary: bank preferreds are non-cumulative, meaning the board can suspend payment without defaulting and never owe it back — a bond's coupon is a contract, a preferred's is a privilege a board can decline in a hard year. There is no maturity: a Treasury repays you in full on a known date, while a preferred is perpetual and its redemption is an option that belongs to the issuer. And a preferred sits below every creditor, between bonds and the common stock — which is why the same bank's common pays less than 2% while its preferred pays 6.6%: the common owns the upside, the preferred is locked into its rate but waits in front. The whole U.S. preferred market, for context, currently yields about 1.5 points more than investment-grade corporate bonds, and its members cluster at BBB, the bottom investment-grade rung. The market is charging you for what it cannot promise, on a security that trades like the long-duration asset it is.

The call belongs to the bank

That is where the outcome actually gets decided. Bank of America has been actively pulling the call lever — redeeming preferreds as its refinancing math allows. It redeemed its Series AA in early 2025, its Series DD at $1,000 per depositary share in March 2026, and another $1 billion of preferreds in the first quarter of 2026, even as it sold new Series OO, TT, and UU into the market. That is what running a preferred stack looks like: retire the expensive slices, refresh with cheaper ones.

The consequence is an asymmetry worth holding clearly. Buy a current-coupon series near par and the 6.6% lasts only as long as Bank of America's funding costs stay this high; the day it can borrow cheaper, it calls at par, hands back your principal, and you reinvest somewhere lower. For Series OO the moment is contractual. If five-year Treasury yields are near today's ~4% in 2030, the reset lands right around the current 6.6% and there is little reason to call; if rates have fallen hard by then, expect a redemption notice rather than a coupon. The old discounted series are the mirror image — Bank of America is not about to refinance a 4.4% coupon with a 6.6% one — so their income is protected from the call for as long as money stays this expensive, with the trade-off that you cannot expect the income and a large return toward par at the same time.

Keeping the comparison honest

Two clarifications before the portfolio question. Preferred dividends generally qualify for the lower long-term capital-gains tax rates, while Treasury interest is taxed as ordinary income — a real after-tax edge in higher brackets. But Treasury interest is exempt from state and local tax and preferred dividends are not, so the gap narrows in high-tax states. And no preferred, however well covered, has the principal-guarantee property of a Treasury: its price will move with rates whether or not the coupon is safe.

Seen through the income lens, the verdict is that this is a genuinely durable 6.6% — among the better yields a top-tier bank's preferred book has offered in years — and a dip in the preferred quote with the coverage intact is reinvestment fuel, not an alarm. The alarm would be a different animal entirely: a skipped or rescheduled preferred payment, the CET1 ratio sliding toward regulatory minimums, or credit strain in the loan book. And because it is a preferred, it belongs inside a diversified income portfolio — alongside other issuers and instruments — with the true risk-free Treasury sleeve kept for what it alone can do. One 6.6% security is a layer, not a plan.

So the practical answer is simple. The income is real, disclosed as earned, and collectible. Buy the specific series whose reset and call dates you understand; expect to be handed your principal back at some point and be ready to redeploy it; keep a real Treasury sleeve for emergencies; and measure your progress in income actually paid, not in the color of the quote. What is on offer is an excellent yield machine that happens to wear a bond's clothes — buy it knowing which parts are real.