Some confusion about bonds / CD's

[CardMinger]

As I am getting more and more bearish on the market as a whole I am looking to diversify my stock holdings with something a little more stable such as bonds / CD's. I currently own Vanguard's S&P 500 fund so I was looking at some vanguard bond funds.

One I was thinking about was VUSTX, Vanguard Long-Term U.S. Treasury. This is yielding 4.33% at the moment. The only problem with this is that I expect interest rates to rise which I believe will push the prise of these bonds, and hence the price of shares of VUSTX down (please correct me if I am wrong...).

Then I took a look at bankrate.com and see that ING has a relatively short term (1 year) CD at 4.15% APY. Why would it make sense for me to invest in the Vanguard fund and risk a loss of principal? The only reason I can see is that there is potential for a growth of principal but it does not look like much according to the chart.

Does anyone else have another reason to justify investing in the Vanguard fund? It does not seem to me that the extra % of yield would justify the risk but perhaps I am not taking into account the possible gain either.

Also as far as I understand since CD's are FDIC insured up to 100K then they are just as safe an instrument as Treasury bonds.

Also as an aside...how can ING bank always offer the best CD rates? Is it simply their size and low overhead or is there something somewhat tricky that I do not understand.

Thanks!
Kevin