The phrase suggests extreme nervousness, more than just being slightly worried or anxious. On my wedding day, I was such a bundle of nerves, I could barely say 'I do.'
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Temporary State
This phrase usually refers to a temporary condition, often before an important event. The students were a bag of nerves just before the results were announced.
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Colloquial Usage
It's commonly used in informal contexts, such as conversations between friends. I'm a bundle of nerves every time I have to drive in heavy traffic.