Hide in Canada?

Given the anxiety over a US credit downgrade from AAA, Matt Yglesias wrote that since the US issues roughly 60% of AAA-sovereign rated paper, there aren't that many places to hide if you are looking for AAA paper:

There’s not nearly enough German or French or British AAA-rated debt out there to play the kind of global role that U.S. Treasuries currently play. The world’s second largest economy, China, doesn’t have liquid capital markets, and the third largest economy, Japan, has already lost its AAA-rating.

That got me to thinking. If you are worried about the Europe (i.e. France, Germany and the UK), the other obvious alternative are the Canadas. Take a look at the spread between the 10 year Canadas and the 10 year Treasuries. While Canadas have rallied somewhat against Treasuries, the spread is by no means at an extreme level.

 Now look at the Canadian Dollar, shown below. The loonie remains in a technical uptrend against the greenback and recently staged a bullish breakout and pullback pattern.

Could Canada* be a place to hide?



* Warning: The Canadian bond market is far less liquid than the Treasury market. The Canadian economy is about one-tenth the size of the US so you should scale your liquidity expectations accordingly.