The Influence Of Government Finance On The Issue Pricing Of Local Government Bonds

The development of local government bonds in China was relatively late.In consideration of risk control,the government prohibited local governments from issuing bonds for a long period of time.It did not start pilot distribution in some provinces until 2009.However,in 2009-2014,the government still remained cautious about local government bonds.During this period,instead of local government bonds,it were city investment bonds that were issued on behalf of the issuer through local financing platforms and state-owned enterprises.Until October 2014,the country realized the huge invisible risk of the city's investment debt.It restricted the city's investment debt and began to gradually promote the development of local explicit debt.Compared to the history of the development of municipal bonds in Europe and the United States for hundreds of years,China is still in its infancy,and there are major deficiencies in some systems and methods.The key issue is how to price local government bonds and what factors will affect their issuance rates.Due to the late development,most of the current academic research on local government bonds is focused on a qualitative perspective,analyzing the feasibility of issuing local bonds in China and related policies.The quantitative study are basically absent.And our political system is different from other capitalist countries such as the United States.There are many deficiencies in copying other countries' pricing methods.Therefore,we try to study the pricing of local government bonds in China at this stage,and analyze the effect of government financial conditions on the issue pricing.Based on the data of all local government bonds issued by China in 2015-2017,this paper uses multivariate linear regression model,descriptive statistical analysis,stepwise regression method and fixed-effect model to study the topics.A local government bond pricing model was established from three aspects:the bond's own variables,the government's fiscal position,and macroeconomic factors.The individual effects and time-point effects of actual forecasts were taken into consideration,and fixed-effect models were used to adjust.Finally,we make a reasonable forecast about the local government bonds of Zhejiang Province in 2018.Through empirical research,this paper has obtained the following conclusions:First,the per revenue can significantly increase the government's explicit guarantee ability and reduce the issuance interest rate of local government bonds;the ratio of debt balance to local fiscal revenue is proportional to the interest rate of.bond issuance;the ratio of state-owned land income to fiscal revenue is significantly inversely proportional to the increase in the issuance interest rate of local government bonds;the implicit fiscal status represented by the ratio of the stock of city debt and the fiscal revenue significantly increases the issuance interest rate.Second,considering the individual effects and time-point effects of local government bonds,it is found that there is a positive individual effect in the eastern region and a negative individual effect in the western region.The reason is that the eastern region is subject to stricter government supervision and has an impact on the issuance interest rate;The effect was negative in 2015 and 2016 and positive in 2017,mainly due to the stringent 2017 PPP policy.Third,after getting the pricing model,this paper takes into account that the data used in this model are all released in the second year and there is a certain lag.Therefore,taking Zhejiang Province as an example,a reasonable forecast was made for the issuing price of Zhejiang local government bonds in 2018,and the reasonable issuance spread for 5-year AAA credit rating was 0.474%.Finally,based on all the above analysis,we have reached conclusions and policy recommendations for the development of China's future local government bonds.We believe that we should learn from the US's many years of development experience,improve the local government debt pricing model,improve the third-party credit assessment mechanism,strengthen the bond information disclosure mechanism,and provide investors with adequate risk tips.