When the world border is smaller than 30 blocks mobs do not spawn naturally. This number may vary a little depending on decimal fraction of worldborder center coordinates. This issue does not seem to appear in 1.20.6.

Steps to reproduce:

1. Place an always active repeating command block with the following command:

   /execute as @e run effect give @s glowing infinite

2. Run the following commands in order:

   /worldborder center ~ ~
   /worldborder set 28
   /tick sprint 12d

3. Notice that no hostile mobs are spawning underground
4. Increase the world border size to 32:

   /worldborder set 32

5. Hostile mobs do spawn