Authors: Tobias Adrian and Emanuel Moench

This paper shows how to price the term structure of interest rates using return regressions. The method allows instantaneous estimation of affine term structure models with a large number of pricing factors. Asymptotic standard errors that adjust for the generated regressor uncertainty are provided. We test for the number of factors needed to explain Treasury returns and allow for unspanned factors in the estimation. The method gives rise to small pricing errors compared to commonly reported specifications and can be used when zero-coupon yields are not observed.