Analysis On Liquidity Risk And Default Risk Of China Municipal Bond

Municipal bond is a form of bond that urban governments absorb fund from society according to credit principle and meet city public expenditure. Municipal bond occupied very important status at the developed countries bond market as one of common financing tool.Our country's rapid development of economy makes local government have heavy demand on municipal construction fund. But issuing quasi-municipal bond in the form of company's bond still has a lot of problems that can't be avoid. With our country carrying out deep reform on financial and fiscal system, it is necessary and feasible to introduce financial instruments, such as municipal bond, to develop and foster the municipal bond market.This paper discusses the municipal bond's characteristic as well as U.S.A. current situation of municipal bond. Then this paper analyzes the liquidity risk and credit risk of municipal bonds. In the third part, this paper introduces the operating mechanism of modern KMV Credit Monitor Model. On this basis, I constructed the credit risk valuation model for municipal bonds apply the model on the case of Shanghai.