Typically, bond fund price goes down as interest rates rise, because the yield of the holdings must rise to match the increased yield of newly issued bonds.

Right now, interest rates have less relevancy on the price of this etf than does the impending bankruptcies of Ambac and some of the municipalities that were insured by Ambac. When Jefferson County Alabama finally keels over and sticks all four feet in the air, and Ambac folds as well, then you'll see another sector panic. It would be nice if the Feds would step in and resolve the woes of a bunch of redneck idiots who didn't understand how auction rate financing worked in the bond market, but then the Fed would have to intervene everywhere else as well.