I have opinions, but no advice.
As you note, when interest goes up, bonds go down. I can't find a reason in the world to believe interest can decline significantly (.5% is significant) from present levels, so basically, I'm scared to death of bond funds. Here's why. If interest increases, as I expect, bond funds will drop, with the possibility of numbers of people pulling out of them. When (if) they do, the only way the funds will have to satisfy the demand for cash is to sell some of the underlieing bonds at the market, and that would very likely be a badly inopportune time to be selling bonds.
Maybe funds that specialize in short term maturities. . . ? Even there, I'm not optimistic.
For my own situation, I'm aware that State Farm bank in now paying less than .8% on relatively short term CDs. Not much at all, but about 800% above my money market returns. We have a local savings bank offering much better, I may be moving there from money market, depending on how they check out on the FDIC site. Anyhow, my own situation is that I can pull a certain amount from 401K at .1% and reinvest it in time deposits varying from below .8% up to nearly 2%. Chicken feed, I know, but lookee here. 401k withdrawals are taxable income, but at the moment I can drag out some amount to be determined this weekend without exceeding std deduction, personal exemption, and the additional "elderly" exemption - and the money goes from uninsured to FDIC insurance.
It's bad to have an income so low as to permit that, but in an extreme case, could result in saving taxes at a marginal rate of 15%, the last time I checked. Nothing else is paying that well.