Based on the improved KMV model，this paper studies the factors which affect credit spread of Local Treasury Bonds by establishing the model of factors on credit spread. The study found that the bond issuance, the remaining period of bonds, the slope of the term structure of interest rates and year-on-year GDP growth showed a significant influence on the credit risk of Local Treasury Bonds. Then, this paper figured out the safety bond issuance based on the reformed model of KMV and proposed controlling the issuance of Local Treasury Bonds in order to guard against the credit risks involved.