Which of the following is a characteristic of bond market illiquidity?

The correct answer highlights a fundamental aspect of the bond market. Bonds typically trade in over-the-counter (OTC) dealer markets, which is a key characteristic of bond market illiquidity. In these markets, transactions are not structured within a centralized exchange, resulting in a less active trading environment compared to stock exchanges. This structure can lead to greater challenges in quickly buying or selling bonds, as there may be fewer buyers and sellers available at any given time, contributing to illiquidity.

In OTC markets, bonds are traded directly between parties, with pricing often less transparent than in centralized exchange environments, which can also exacerbate liquidity issues. The lack of a centralized marketplace means that trading volumes can be lower and price discrepancies can occur more frequently, leading to wider bid-ask spreads.

Other options highlight characteristics that do not align with the nature of bond market illiquidity. For example, an active secondary market (as stated in another choice) suggests a smooth trading process, contrary to the illiquid nature of many bonds. Similarly, the interchangeability of bonds with stocks overlooks the unique attributes of each asset class in terms of liquidity profiles. Lastly, the idea that all bonds have the same liquidity profile disregards the variations that exist between different types of bonds