I'm not sure I agree with this. Liquidity implies depth of market and the ability to convert the asset into cash quickly.
The volatility of market value of the asset w.r.t. interest rates is not a factor here. Long dated bonds can have a very deep market and you can trade instantaneously. Whether of not the asset value will change with interest rates has no effect on the ability to convert it into cash.
Liquidity preference theory is not saying long dated bonds are less liquid, it is saying investors will demand a premium for investing in more volatile assets (since their market value moves by a larger degree when interest rates change).
Last edited by a moderator: Feb 14, 2008