The article explores how bond liquidity affects economic growth and stability in a two-country model. Higher bond liquidity can boost growth by making it easier to finance investments, but it can also increase instability by raising leverage and worsening terms of trade. The study shows that in some cases, the costs of instability outweigh the benefits of higher growth. Bond liquidity can relax leverage constraints and increase credit taxes. The research also looks at the differences between public and private liquidity and their implications for fiscal policy.