Which of the following is a key feature of treasury bills?

Treasury bills, commonly referred to as T-bills, are short-term government securities that are a key feature of debt instruments issued by the government. They are characterized primarily by being backed by the full faith and credit of the U.S. government, which makes them one of the safest investments available. This backing ensures that the principal amount invested is secure, and the likelihood of default is extremely low, thus offering a high degree of security to investors.

Unlike other types of government securities, T-bills do not pay periodic interest; instead, they are sold at a discount and mature at their face value. Investors earn returns based on the difference between the purchase price and the face value received upon maturity. The maturity of T-bills is typically less than one year, which distinguishes them from other government securities that may have longer maturities.

In terms of taxation, Treasury bills are subject to federal taxes, but they are exempt from state and local taxes, which can be a selling point for some investors.

Overall, option B succinctly captures the essence of T-bills by emphasizing the trust and reliability associated with government backing, making it the correct answer to the question regarding a key feature of Treasury bills.