Bonds are not just govt bonds. There are also corporate bonds. Corp bonds are basically divided into 2: investment grade and non investment grade (or high yield or junk). These fetch higher yields than govt bonds.

There are also bond etfs, being etf investing into bonds. For eg TLT is an ETF that invests in long dated US govt bonds.

I own bonds, singly and via etfs.

Problem with bonds now is the historical low yields.

You are partly right, but there are 2 competing forces here.

1) Bad economy = higher possibility of default = higher interest to commensurate for higher risk

But there is a bigger pressure down:

2) Central Bank interest rate policy. Keeps interest rate low.