Liquidity is a relative concept, a matter of degree, and we all start from Keynes’s definition that one asset has more liquidity than another if it is “more certainly realizable at short notice without loss,” Here, “realizable” means the capacity to be exchanged into narrow money or, even better, into goods and services. Where does the demand for liquidity come from?
By and large, one would expect that in more stable times, counterparty concerns would be reasonably absent over shorter horizons and so not much of a risk premium should be present in the pricing. But when counterparty concerns are rising, they tend to be rapidly incorporated into this spread.