As an individual investor, AAA rated bonds and even AA rated bonds provide much lower interest rates than a conventional GIC from a reputed institution backed by CDIC. So who would ever want to buy a bond in these circumstances?
I'll explain with an example of something that was recently considered to be a surprise decision by the Bank of Canada.
Until 20th January 2015, the BoC overnight lending rate was 1%. Unexpectedly, the rate was cut by 25 points to 0.75%.
Impact on GIC's
Banks will eventually cut the interest rates offered on GIC's as well. You may have already purchased your GIC's but when they come up for renewal, you could be in a situation where interest rates are lower.
Impact on bonds
If I held a bond prior to the rate cut, it would have yield x%. After the rate cut, any new bonds would have a yield lower than x%. This makes my bonds more valuable and the price of my bonds goes up.
Interest rates have been low in Canada for some time now. A "special offer 15 month GIC" through TD Canada Trust will get you 1.5% if you are lucky. Only credit unions have higher yields.
Contrast that with investing in a low cost bond fund such as the TD e Series Canadian Bond Fund. You can see the numbers for yourself but the yield looks a lot more attractive than what a GIC can get you.
The highest yielding GIC's are those that are locked in for a significant period of time leaving you even more susceptible to interest rate changes. A bond fund or ETF is more liquid allowing you to adapt to changing economic environments.