An Empirical Study On The Pricing Of Local Government Bond Issuance Under The Background Of Market Release

No.43 Document of State Council clearly regulates the local government debt financing system.China's new budget law has been put into practice since 2015,which gives debt financing functions to the local government.Since then,Chinese local government bonds began to adopt marketing distribution.The provincial government takes the responsibility for the region's local debt issuance,interest payments and repayment rather than taken by the State Ministry of Finance.In the context of marketization,the pricing of local government bonds is determined by the market interest rate and the credit of local government.The pricing mechanism of local government bonds has undergone a fundamental change.With the expansion of local debt distribution scale and the increase of marketization,the credit risk premium becomes more and more obvious.How to decide the price has become a common market concern.This paper studies the influence of local government credit on local debt pricing in the background of marketization,separating the directional distribution and public distribution.Based on the local government debits distributed between 2015 and 2017.3,the paper will construct an empirical model of local debt pricing from the local government credit factors,macroeconomic factors and micro-coupon factors.Based on results of the empirical model,this paper has drawn the following conclusions:First,local government bonds pricing can reflect the credit status of local governments to some extent in the background of marketization.Factors the direct debt balance of the proportion of total budget revenue and tax revenue of the proportion of the general budget are the most significant two indicators of the situation of local government credit,which explain the difference between rate of directional and public distribution.The smaller the proportion of the local government direct debt balance to the general budget revenue,as well as the greater the proportion of the tax revenue to the general budget income,the smaller the spread of local bonds.In the public distribution mode,the greater the financial self-sufficiency rate,as well as the greater dependence on the credit channel,the lower the spread of local bonds.In the directional distribution model,the land financial dependence is positively related to the spread of local bonds.Local GDP growth rate variable is not significant.Also,in the directional distribution model,the geographical location difference is significant,while not significant in the public distribution model,which indicates the spread of local bonds in the Yangtze River Delta,the Bohai Rim and the Pearl River Delta is relatively low.Second,in the respect of macroeconomic factors,short-term interest rate SHIBOR and the growth rate of money supply M2 have a positive relationship to the local spread bonds.In the public distribution mode,the higher the slope of the bond yield curve and the greater the growth rate of the CSI 300 index,the smaller the spread of local bonds.Again,the issuance period of the local debt is significantly positively correlated with the spread of local bonds.Also,the relative distribution size is positively related to the spread of local bonds.The greater the ratio of the distribution scale to the local financial scale,the greater the spread of the local bonds.Finally,different distribution methods have an impact on the pricing of local debt.There are commonality as well as differences in the factors affecting spreads of the local bonds issued in public and directional distribution mode.The balance of the local government debt/general budget income,the proportion of the tax revenue of total budget revenue,the short-term interest rate,the M2 growth rate and the issuance period are the common significant variables of the two distribution models,which have the same direction as the expected theory indicates.In this paper,public distribution model better goodness of fit,where the coefficient direction of the variables is consistent with the theoretical explanation.However,directional distribution model has a relatively poor fit.And the coefficient direction of the individual variables is inconsistent with the expected theory.On the one hand,the reason could be fewer samples were found about directional distribution.On the other hand,directional distribution is mainly determined by local governments and financial institutions,in which commercial banks have more initiatives.Also,liquidity premiums have a greater impact on pricing.Based on the conclusions achieved above,this paper has thrown out some policy suggestions from the local government issuers,local debt investors,rating agencies and policy makers:local governments should pay special attention to their own credit status;investors should recognize the credit risk of local debt bonds;government needs to establish and perfect the credit rating of local debts,then improve the market issuing mechanism of local debt and enrich the local debt varieties.