When interest rates are on the higher side, investors try to lock into the best available rates (see table: Best FD rates across tenures). If they invest the bulk of their money in bonds that mature at around the same time, they could create a high degree of liquidity and reinvestment risk in their portfolios. Liquidity refers to how quickly an investment can be converted into cash.
A person who has invested in bank fixed deposit (FDs) can raise money within a couple of hours. Someone who has invested in illiquid bonds may find it difficult to sell them at all. Liquidity also refers ...
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