If we have high liquidity constraints we invest in cash & bonds( as bonds are income producing) but bonds are also illiquid right
As liquidity means need of cash for spending in the coming year, so cash will help us finance our needs & bond coupon will help us but we even need to sell the bond right? To get cash
Its contradictory right?
It depends on the bond.
T-bills, T-notes, and T-bonds are incredibly liquid; corporate bonds, less so.
You didn’t understand my doubt im asking the difference between liquidity need & income need like for eg for the next 5 yrs i have to pay college fees, so i need cash for that so people invest in bonds to fund that fees which contradicts to liquidity as bonds aren’t liquid
If you need money each year for the next five years, then you can invest in a laddered bond portfolio: 1-year bonds, 2-year bonds, 3-year bonds, 4-year bonds, and 5-year bonds. If you want to invest in corporate bonds, you may have a difficult time finding the exact bonds you need, so you buy bond ETFs. If you’re OK with government bonds, you should have no difficulty finding the bonds you need, because government bonds are, in general, extremely liquid.