Editing Interest rate (section)

===Liquidity preference===
Most economic agents exhibit a [[liquidity preference]], defined as the propensity to hold [[cash]] or highly liquid assets over less [[Fungibility|fungible]] investments, reflecting both precautionary and transactional motives. Liquidity preference manifests in the yield differential between assets of varying maturities and convertibility costs, where cash provides immediate transaction capability with zero conversion costs. This preference creates a term structure of required returns, exemplified by the higher yields typically demanded for longer-duration assets. For instance, while a 1-year loan offers relatively rapid convertibility to cash, a 10-year loan commands a greater liquidity premium. However, the existence of deep secondary markets can partially mitigate illiquidity costs, as evidenced by US [[Treasury bond]]s, which maintain significant liquidity despite longer maturities due to their unique status as a safe asset and the associated financial sector stability benefits.<ref>{{cite journal |doi=10.1086/666589 |title=The Aggregate Demand for Treasury Debt |journal=Journal of Political Economy |volume=120 |issue=2 |pages=233–267 |year=2012 |last1=Krishnamurthy |first1=Arvind |last2=Vissing-Jorgensen |first2=Annette |url=http://www.minneapolisfed.org/research/SR/SR410.pdf }}</ref><ref>{{cite journal |doi=10.1016/j.jfineco.2015.09.001 |title=The impact of Treasury supply on financial sector lending and stability |journal=Journal of Financial Economics |volume=118 |issue=3 |pages=571–600 |year=2015 |last1=Krishnamurthy |first1=Arvind |last2=Vissing-Jorgensen |first2=Annette }}</ref>