As I said last year, I think the issue is not so much one of a decline in liquidity as much as a decline in the capacity to warehouse risk. In the past, when there was a large sell-off in bond markets, liquidity was never that great. A bank has no more desire than any other investor to catch a falling knife.
Bid-ask spreads widen considerably and the depth of book deteriorates. That has always been the case. BIS central bankers’ speeches  3  However, in addition to a decline in liquidity provision, banks now have less risk-warehousing capacity than they did in the past. They are less able to be nimble buyers of assets whose prices they believe have overshot.