This paper examines the relationship between stock returns and the term structure of interest rates, focusing on how the state of the term structure predicts stock returns. The author finds that risk premia on stocks tend to move closely with those on 20-year Treasury bonds, while risk premia on Treasury bills move independently. The paper tests several asset pricing models using these observations. It rejects a single-latent-variable model but finds weak evidence against a two-latent-variable model. The analysis also examines the relationship between conditional means and variances of returns on bills, bonds, and stocks, finding that bill returns tend to be high when their conditional variance is high, but stock returns have a negative relationship with their conditional variance. A model is estimated where asset returns are determined by their time-varying betas with a fixed-weight portfolio of bills, bonds, and stocks, with the portfolio placing almost all its weight on bills, indicating the importance of uncertainty about nominal interest rates in pricing both short- and long-term assets.This paper examines the relationship between stock returns and the term structure of interest rates, focusing on how the state of the term structure predicts stock returns. The author finds that risk premia on stocks tend to move closely with those on 20-year Treasury bonds, while risk premia on Treasury bills move independently. The paper tests several asset pricing models using these observations. It rejects a single-latent-variable model but finds weak evidence against a two-latent-variable model. The analysis also examines the relationship between conditional means and variances of returns on bills, bonds, and stocks, finding that bill returns tend to be high when their conditional variance is high, but stock returns have a negative relationship with their conditional variance. A model is estimated where asset returns are determined by their time-varying betas with a fixed-weight portfolio of bills, bonds, and stocks, with the portfolio placing almost all its weight on bills, indicating the importance of uncertainty about nominal interest rates in pricing both short- and long-term assets.