Abstract: Municipal bond is an important way to resolve the risk of local government financing platform and broaden the sources of local government’s funding. By analyzing theory and practice of local government bonds credit risks, the paper uses improved KMV model to test local government bond credit risk of Zhejiang Province and get a reasonable range of local government bond issuance. Finally, we propose some effective policy recommendations to establish local bond credit risk management system, which provide references for management decision-making.