The paper losses on a large Bank of America bond portfolio could have widened by more than $10 billion to over $90 billion in the current quarter, thanks to the fixed-income market's blistering selloff.

While the losses are unrealized, they are significant, and the portfolio has been a drag on the bank's earnings for several years.

Bank of America's $506 billion portfolio of low-rate bonds, mostly U.S. agency mortgage securities, has been a sore spot for shareholders. The bank largely accumulated the bonds during the Covid era of 2020 and 2021, when interest rates were at historic lows.

At that time, the bank viewed the huge portfolio as a potential hedge against an extended period of near-zero short-term rates. However, it has turned out to be one of the bank's worst financial moves since CEO Brian Moynihan's tenure began in 2010, because the value of the portfolio has dropped sharply as yields have risen. Bond yields and prices move inversely.

Bank of America declined to comment Thursday. At its investor day last year and in other forums, the bank has said its earnings and margins will get a nice boost as the securities mature.

The portfolio's mark-to-market losses stood at $82 billion at the end of the second quarter, according to the bank's supplemental financial report. Mark-to-market means the fair market value of the securities.

With the increase in mortgage and some intermediate-term Treasury yields of about a half percentage point so far in the third quarter, those paper losses could widen by $10 billion or more, assuming no change in yields by Sept. 30, Barron's estimates.

The current quarter's losses, however, will remain considerably below the $131 billion of mark-to-market losses in the 2023 third quarter, when Treasury and mortgage yields also were high. The lower current losses reflect repayments in the portfolio.

Bank of America classifies this $506 billion portfolio as held-to-maturity for accounting purposes-which means it plans to hold the bonds until they mature rather than sell them. If it does that, the losses eventually will disappear, but it will take time, since the bulk of the mortgage securities likely had original maturities of about 30 years. (Because the securities are issued by the Treasury and quasi-government agencies, there is effectively no risk of default.)

The held-to-maturity accounting treatment, which is widely used in the banking industry, involves a trade-off. The bank essentially agrees that it won't sell any of the securities before maturity, and it gets favorable accounting treatment because the losses don't depress its reported capital, including tangible common equity. Otherwise, the paper losses would eat into a sizable chunk of Bank of America's $206 billion of tangible common equity, which is a key measure of its capital.

The bulk of the $506 billion portfolio consists of some $379 billion of agency mortgage securities with an average rate of just 2%, against a current market rate of about 6%. The mortgage securities had paper losses of $68 billion as of June 30.

The held-to-maturity portfolio has weighed on the bank's returns and margins since 2022 and probably contributed to the weaker performance of Bank of America stock relative to its closest peer, JPMorgan Chase.

JPMorgan also has a held-to-maturity bond portfolio, but its paper losses were a fraction of Bank of America's in the second quarter, at $18 billion, according to its financial supplement. When interest rates were at historic lows in 2020 and 2021, JPMorgan was less willing to buy bonds than Bank of America, reflecting CEO Jamie Dimon's view that the risk/reward in bonds then wasn't good, given their low yields.

Bank of America shares, which are up 0.3% Thursday to $58.04, have risen 4% this year, while JPMorgan shares, at around $349, are 7% higher so far in 2026.

Over the past five years, JPMorgan stock has returned 20% annually (including dividends)-double that of Bank of America's shares. JPMorgan generated a return on tangible common equity of 23% in the second quarter adjusting for some one-time gains, compared with 17% for Bank of America.

Bank of America has emphasized the positive with its underwater held-to-maturity bond portfolio, projecting that earnings and margins should increase as the holdings mature. This will allow the bank to reinvest the proceeds at current market rates of 5% or more if it wishes.

At its investor day presentation in November 2025, the bank projected that it would be able to reinvest $355 billion to $390 billion from 2026 through 2031 from repayments on the portfolio's low-yielding mortgage securities, Treasuries, and residential mortgages. That's more than 10% of the bank's $3 trillion of earning assets.

In one slide in its presentation deck, Bank of America called this a "Future Net Interest Income Tailwind" from "Fixed-Rate Asset Repricing."

A sizable chunk of reinvestment would come from the mortgage securities lodged in the held-to-maturity portfolio. The bank estimates those will provide $145 billion to $165 billion of reinvestment between 2026 and 2031-from scheduled paydowns on the underlying loans and prepayments before the loan maturities.

The increase in mortgage rates this year to about 7%, however, could reduce the reinvestment opportunity because of potentially slower prepayments on the bank's mortgage securities portfolio, Barron's estimates. Higher mortgage rates are slowing housing activity.

Bank of America will disclose the paper losses on the held-to-maturity portfolio in its third-quarter earnings supplement in October and could provide commentary on the reinvestment outlook.

The portfolio is steadily maturing and the quicker it does, the better for investors.