Research On Influence Factors Of The Municipal Bond Credit Spread

The framework of fiscal systems between central and local government has been established since the Reform of the Tax Distribution System in 1994,which has further reinforced the financial solvency of the central government.However,due to the mismatched responsibilities and authorizations born in this reform,local government demands much more in economic construction than what they have received.Under this big picture,the Municipal Bond,issued by the local financing platform,has boomed to become one of the most important fund-raising channels in domestic exchange and inter-bank markets.Nowadays,the Municipal Bond still burdens some of debt increments in local government,with the impetus of land prices inflation weakened,and the rigorous supervision of loan and trust.Meanwhile,troubles also occur in the multi-regulatory system,the drag between supervision and development,the lack of effective communications to investors,and the non-transparency in fund utilization,etc.Compared to the industrial debt,the Municipal Bond has large difference in issuer,fund usage,and repayment origins.The issuer of the Municipal Bond is the financing platform backed by local government,which is controlled by government sectors such as the local State-owned Assets Supervision and Administration Commission(SASAC)and the Bureau of Finance.Thus,economic potentials,as symbols of fund-raising and repayment abilities,just become the focus by those investors.Funds raised by the bond are usually allocated in the urban construction of the infrastructure and welfare-guaranteed housing,which are weak in profitability.cash inflows and public information releases.As for the repayment,the revenue generated by the project can be supported partially,and the remaining are burdened on local government.The particularity on issuer and project of the Municipal Bond has decided its difference to the general industrial debt.The default of "11 ChaoRi Bond",happened in 2014,became the first domestic credit crisis of public offering bonds.From then on,the default target has extended from private enterprises to state-owned ones,which derives a significant fluctuation with each credit default happening.However,advantages outshine risks,domestic Municipal Bonds are still generally regarded as "the Gilt-edged Bond",for not only its Chinese characteristics,but the rigid repayment for 20 years since born.At present,with the implementation of local government debt replacement and the penetration of the domestic bond system marketization,the significance of researches on influence factors of the Municipal Bond credit spread has become a highlight to the local government and investors.Based on researches domestically and abroad,this article investigates the factor that may influence a Municipal Bond's credit spread,which take an emphasis on three indicators including macroscopic factors,trading factors and financial factors.On structure,the thesis first introduces the research background and the significance,then the literature review retrospect the study for both domestically and abroad.The empirical analysis consists several parts of sample origins,indicator ascertainment,regression analysis,main conclusions and suggestion.The thesis concludes that factors that affect the credit spread of the Municipal Bond are as follows:GDP,stock prosperity index,money supply,PPI,scale of bond issuing,whether the bond is collateral,whether the bond is involved in the Pledge-style Repo of the treasury bond.On the contrary,financial factors including current ratio and times interest earned cannot explain the topic very well.Finally,we give some advice to market participants based on the empirical result,and look forward to the future of the development on Municipal Bonds and urban investing corporations.