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Last year was one long coming-out party for bond exchange traded funds (ETFs), which managed to attract a cool $104.1 billion, according to Morningstar data. But if you’re expecting a repeat in 2010, that might be premature thinking.

The bond ETF market heated up in 2009, but many anticipate a bit of cooling off in 2010. Insatiable appetites for bond funds in 2009 can be explained by a few factors, including market uncertainty and weak competition from other income-producing products, such as certificates of deposit and money market funds, reports Howard J. Stock for Bank Investment Consultant.

But don’t count out bond ETFs by a long shot.

  • Investors who are looking for income or for ways to mitigate risk will continue to find them an extremely appealing and efficient way to get access to the fixed-income space.
  • Bonds also help counter volatility while preserving capital, which is a nice aspect in these market conditions.
  • The distributions that come from bonds can help cushion the blows on the downside.
  • Bond ETFs possess tax efficiency, low costs and total transparency. They also provide a kind of exposure that would be cost-prohibitive otherwise.

One thing to be mindful of, though, is the prospect of interest rate hikes. Sometime in the next 12-20 months, we’re looking at the very real prospect that the Federal Reserve will raise rates. When it happens, holders of long-term bonds are at risk of losing principal. Be on your guard and ready to act accordingly when it happens.

Here's a rundown of charts from some of the more popular bond ETFs on the market today:

  • iShares Barclays Aggregate Bond (NYSEARCA:AGG)

  • iShares Barclays 1-3 Year Treasury (NYSEARCA:SHY)


  • PIMCO 1-3 Year U.S. Treasury (NYSEARCA:TUZ)

  • PowerShares Insured National Muni Bond (NYSEARCA:PZA)

  • ProShares Short 20+ Year Treasury (NYSEARCA:TBF)

  • SPDR Barclays Capital High Yield Bond (NYSEARCA:JNK)

  • Vanguard Short-Term Bond (NYSEARCA:BSV)

Source: Four Reasons Bond ETFs Still Have Appeal