The Bond Market and Fiscal Balance

Toru Nakazato

Japanese Economy, 2011, vol. 38, issue 1, 59-80

Abstract: It is important that the fiscal positions of government bodies are appropriately assessed by the markets for the bonds they issue, thereby allowing market regulations on fiscal management to function effectively and promoting sound fiscal management. This article examines the relationship between the financial conditions of local governments (creditworthiness) and the local bond yields (spread versus Japanese national government bonds), and conducts an empirical analysis of the trading market for public subscription bonds. According to the calculations conducted in this study, (1) there is a significant difference in interest rates (of five to seven basis points) between public subscription bonds issued by agencies with a rating of AA versus AA-; and (2) the ordinary balance ratio (i.e., ordinary expenses as a percentage of ordinary revenue) and the outstanding local borrowing ratio (i.e., outstanding amount in relation to standard local government revenue) have a significant positive correlation with public subscription bond yields, thereby confirming that a worsening of the financial situation has worked to increase the spread between local bonds and national government bonds. These results suggest that the conventional view that "there are no differences in the creditworthiness of different local governments because they are all backed by the national government" has been abandoned.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.2753/JES1097-203X380103 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:jpneco:v:38:y:2011:i:1:p:59-80

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MJES19

DOI: 10.2753/JES1097-203X380103

Access Statistics for this article

More articles in Japanese Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().