We show that the recently developed nonparametric procedure for fitting the term structure of interest rates developed by Linton, Mammen, Nielsen, and Tanggaard (2000) overall performs notably better than the highly flexible McCulloch (1975) cubic spline and Fama and Bliss (1987) bootstrap methods. However, if interest is limited to the Treasury bill region alone then the Fama0Bliss method demonstrates superior performance. We further show, via simulation, that using the estimated short rate from the Linton-Mammen-Nielsen-Tanggaard procedure as a proxy for the short rate has a higher precision than the commonly used proxies of the one and three month Treasury bill rates. It is demonstrated that this precision is important when using proxies to estimate the stochastic process governing the evolution of the short rate.
