OK, Illuminated, I think I see what is happening in your test case. The number of attacking and defending squads seems to matter. In my earlier tests, I had 1 attacking squad with 2 defending squads to choose from. When I added a second attacking squad, then the defending bodyguards were targeted as well. So, I guess I would say target preference is given to non-bodyguards, but that bodyguards are not ignored.
Attacker Squads (nearest to farthest): Air Elementals (size 2), Silver Adept + Mechanical Men, Air Elementals (size 4)
Defender Squads: Mechanical Men, Silver Adept + Mechanical Men
Two Attacking Squads (Attack Rear) Targeting Two Defending Squads (Hold and Attack, Guard Commander)
One Attacking Squad (Attack Rear) Targeting Non-Bodyguard Squad (Hold and Attack)