Bond ETF funds have grown in number with time, allowing investors to choose from a variety of investments including corporate bonds, municipal bonds, government bonds (inflation protected, short, medium, and long-term), high yield corporate bonds (junk bonds), mortgage bonds, etc.
Bond ETF funds trade are traded as stocks on the stock market - they have their own ticker symbols you can use to buy and sell through your online broker - and so they permit small investors to trade proxies for the bond markets which trade with much greater transparency than small investors ever see in the actual bond markets. The bond markets are much bigger than the stock markets in terms of value. The transparency of bond ETF funds has enabled smaller investors to trade the bond markets much as they would the stock markets using methods such as charting.
Bond ETF funds have the advantage of being considerably more liquid than the underlying bonds and are more easily traded too.
An added advantage of Bond ETF funds is that if you believe bonds are headed for a fall, you can sell the ETF short. If your trading account does not facilitate short selling, Inverse Bond ETF funds are available which allow to profit from falling bond prices.
The following should, in no way, be taken as any advice to buy these Bond ETF funds, but it gives examples of one possible bond portfolio that might suit some fictional investor's risk profile.
PowerShares 1-30 Laddered Treasury: The investment seeks investment results that correspond generally to the price and yield (before fees and expenses) of an index called the Ryan/Mergent 1-30 Year Treasury Laddered index. The fund normally invests at least 80% of total assets in U.S. Treasury securities. It may invest at least 90% of total assets in the securities that comprise the Ryan/Mergent 1-30 Year Treasury Laddered index. The fund is non-diversified.
iShares Barclays Aggregate Bond: The investment seeks investment results that correspond to the price and yield performance, before fees and expenses, of the total United States investment-grade bond market as defined by the Barclays Capital U.S. Aggregate index. The fund invests approximately 90% of assets in the bonds represented in the underlying index and in securities that provide substantially similar exposure to securities in the underlying index. The Underlying index measures the performance of the total United States investment-grade bond market.
SPDR Barclays Capital Municipal Bond: The investment seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of an index that tracks the United States municipal bond market and provides income that is exempt from Federal income taxes. The fund uses a passive management strategy designed to track the price and yield performance of Barclays Capital Municipal Managed Money index. The index tracks the U.S. long term tax-exempt bond market, including state and local general obligation bonds, revenue bonds, pre-refunded bonds, and insured bonds. It is non-diversified.
SPDR Barclays Cap Mortgage Backed Bond: The investment seeks to replicate, net of expenses, the Barclays Capital U.S. MBS Index. The fund will invest at least 80% of assets in fixed-income securities that comprise the index. The index measures the performance of US agency mortgage pass-through segment of the US investment grade bond market. The fund is non-diversified.
iShares Barclays Agency Bond: The investment seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. Agency Bond index. The Fund generally invests at least 90% of assets in the securities of its Underlying index and in investments that provide substantially similar exposure to securities in the Underlying index. It may invest the remainder of assets in bonds not included in its Underlying index, but which BGFA believes will help the Fund track its Underlying index, as well as in certain futures, options and swap contracts, cash and cash equivalents, including money market funds advised by BGFA. It's non-diversified.