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**Abstract:**

Is there asymmetry in the distribution of government bond returns in developed

countries? Can asymmetries be predicted using financial and macroeconomic variables?

To answer the first question, we provide evidence for asymmetry in government bond

returns in particular for short maturities. This finding has important implications for

modelling and forecasting government bond returns. For example, widely used models

for yield curve analysis such as the affine term structure model assume symmetrically

distributed innovations. To answer the second question, we find that liquidity in

government bond markets predicts the coefficient of skewness with a positive sign,

meaning that the probability of a large and negative excess return is more likely in a less

liquid market. In addition, a positive realized return is associated with a negative

coefficient of skewness, or a small probability of a large and negative return in the future.