> I never traded cash bonds but would struggle to imagine it would be hard to liquidate

Bonds are actually well known for having terrible liquidity. It's common for corps and munis even with good credit ratings to be no-bid, and even Treasuries, once they're off-the-run, aren't easy to move without moving markets.

These types of bonds are what caused the pound's dramatic fall a few months ago. There isn't a large market for these. If you need to sell a lot at once, you're in trouble. The treasury recently explored stepping in to provide liquidity for off-the-run bonds: https://www.reuters.com/markets/us/yellen-says-taking-steps-...

They are easy to liquidate. But not at the face value. For that you need to wait until maturity.

Principle is simple. Why would you buy from someone a piece of paper saying someone else(even government) will pay you 1,5% a year. When you could directly buy from then similar paper paying 4%.