How municipal bonds are priced, how bonds are priced

On October 20, 2011, the Ministry of Finance announced in the official ** that "with the approval of ***, in 2011, Shanghai, Zhejiang Province, Guangdong Province and Shenzhen City will carry out local ** self-issuance of bonds." ”

Article 5 Pilot provinces (municipalities) shall, in accordance with the principles of openness, fairness and impartiality, form their own provincial (municipal) ** bond underwriting syndicate. The first bond underwriter of the pilot province (municipal) shall be a member of the book-entry treasury bond underwriting syndicate from 2009 to 2011, and in principle, no more than 20 shall be established. According to the above terms, that is to say, the annual bond issuance, the local ** needs to declare to **, of which the 3-year bond and the 5-year bond account for half each, within the issuance limit, the local ** can choose the bond underwriter for issuance.

The issuance of ** bonds by pilot provinces (municipalities) shall be based on the interest rate of newly issued treasury bonds and the market interest rate, and the single-rate bond issuance pricing mechanism shall be used to determine the bond issuance interest rate. The interest rate on the issuance of local municipal bonds is better than that of both national and local government bonds. **The 5-year interest rate on local municipal bonds should be at the level.

As an important measure to respond to the international financial crisis and expand domestic demand and ensure growth, it was officially announced at this year's National People's Congress and the National People's Congress that it was agreed to issue 200 billion yuan of bonds by the Ministry of Finance, which will be included in the provincial budget management.

The issuance of a bond** refers to what the investor actually pays when buying the bond in the issuing market (primary market). There are usually four different situations: 1. It is issued at face value, recovered at face value, and interest is paid on time during the period.

2. Issued at face value, and repaid once due according to the sum of principal and interest, most of the bonds issued in China are in this form. 3. Discount issuance, that is, the issuance of ** below the face value, and the repayment of the large book at face value at maturity, the difference between the face value and the issue price is the interest on the bond. This is how Treasury bills are issued and priced.

4. Most corporate bonds are interest-bearing bonds, that is, interest is paid regularly, and the principal is repaid once at maturity and the last interest is paid. The issuance** of corporate bonds** may or may not coincide with the face value of the bonds. Theoretically, a bond issuance** is the present value of the face value of the bond and the annual interest to be paid at the market interest rate at the time of issuance.

Risk Warning: The relationship between coupon rate and market interest rate affects the issuance of bonds**. When the coupon rate of the bond is equal to the market interest rate, the bond issuance** is equal to the face value; When the coupon rate of bonds is lower than the market interest rate, the company cannot attract investors if it is still issued at face value, so it is generally issued at a discount; On the contrary, when the coupon rate of the bond is higher than the market interest rate, the issuance cost will increase if the enterprise still issues at face value, so it is generally issued at a premium.

According to the consensus view, municipal bonds can be broadly divided into two categories, general obligation bonds (GOS) and revenue bonds. General liability bonds are issued by states, cities, counties, or towns (**), all backed by the issuer's tax capacity (in one or several ways of taxation), and their credit derives from the issuer's tax capacity. Revenue bonds are bonds issued by institutions, committees and authorized bodies established by law for the construction of a certain infrastructure, such as institutions or public utilities that build hospitals, universities, airports, toll roads, water supply facilities, sewage treatment, regional power grids or ports, etc., and the debt repayment funds** are used for the purpose of these facilities.

Hence the name of the revenue bond.

First of all, for general liability bonds, we can make the following understanding; First, these bonds are based on local tax capacity, and default is extremely rare, and the principal and interest can be paid regularly and in full and in a timely manner, so they are also called "full faith and credit bonds" (similar to "gilts"). Second, this kind of bond is financed by one or several forms of taxation of the issuer (relevant local **) and is linked to the fiscal revenue budget of ** at all levels, so these bonds should be called local ** bonds. Therefore, for general liability bonds, municipal bonds can be understood as local ** bonds, and their theoretical basis belongs to the theory of public bonds.

Second, for revenue bonds, first, this kind of bond is issued by the ** institution or authorized agency of the "local **", and its repayment of the funds ** is not directly related to the income of the investment project, which is not directly related to the budget of the "local **", and second, the "local **" does not guarantee the repayment of such bonds, and is not a direct debt or contingent debt in the calculation of the "local **" before the financial forecast, and has neither a direct connection nor an indirect relationship with the "local **" budget. Therefore, there is no theoretical basis for understanding this kind of bond as a "local ** bond", nor is it in line with reality.

Municipal bonds, also known as municipal bonds, are issued by states, cities, counties, towns, branches of political entities, territories of the United States, and their authorized agencies or agencies.