One way the government lowers interest costs in debt issuance is by:

The correct choice highlights an important strategy governments use to enhance the attractiveness of their debt offerings and lower interest costs. By securing third-party insurance, the government can effectively mitigate risks associated with its debt. This insurance provides a guarantee that, in the event of a default, an insurance provider will cover the payment obligations.

When investors perceive that a bond is less risky due to the presence of third-party insurance, their confidence in the government's ability to meet its obligations increases. As a result, they are willing to accept a lower return (interest rate) on the investment. This leads to reduced borrowing costs for the government, as lower interest rates translate directly to cost savings in debt service.

In contrast, increasing the duration of bonds or issuing only discount bonds does not directly impact the interest costs in a positive way. Longer durations can actually lead to higher interest rates due to increased risk over time, whereas discount bonds might appeal more to short-term investors but do not inherently lower interest costs. Offering higher yields typically has the opposite effect, leading to higher borrowing costs as it signals higher risk or the need to attract investors in a competitive market. Therefore, securing third-party insurance stands out as a proactive approach to managing risk and reducing interest expenses in government debt issuance.