SHORT ANSWER
The core idea
Bond liquidity can deteriorate when dealers reduce balance-sheet capacity, investors rush to sell similar positions, volatility rises or reliable pricing becomes difficult.
THE MECHANISM
What is happening underneath
Many bonds do not trade continuously, so liquidity can appear abundant in normal conditions and become scarce under stress.
MARKET INTERPRETATION
How investors should read it
Bid-ask spreads, dealer inventories and market depth are useful signals of this change.
BONDSTATS TAKEAWAY
The same market move can carry different information depending on which maturity, issuer and risk premium is changing. Read the question together with the underlying concepts rather than treating one price move as a universal signal.
RELATED CONCEPTS
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