Bill Gross, founder and managing director of Pacific Investment Management Co., which manages US$1-trillion on behalf of clients, said in his monthly letter to clients that Canada stands out among industrialized countries as a destination for investors to park their fixed-income cash.

“Given enough liquidity and current yields, I would prefer to invest money in Canada,”

said Mr. Gross, whose company manages the world’s biggest bond fund.

“Its conservative banks never did participate in the housing crisis, and it moved toward and stayed closer to fiscal balance than any other country.”

In contrast is Britain, the world’s fifth-largest economy, which is in danger of having its debt-to-gross domestic product ratio surge to 120% by 2017 from just less than 50% three years ago.

Mr. Gross said Britain was a “must to avoid,” adding its bonds, or gilts, “are resting on a bed of nitroglycerine.” He added: “High debt with the potential [for pound devaluation] present high risks for bond investors.”

Mr. Gross’s fondness for Canada shouldn’t come as a surprise. As it happens, foreigners can’t get enough of Canadian bonds, issued by the federal government or the provinces.

Recent data from Statistics Canada indicated foreign purchases of Canadian bonds in 2009, at a net $73-billion, shattered the previous $41-billion mark set in 2001. And the record total is likely to swell once December figures emerge.

Fund rater Morningstar Inc. recently named Mr. Gross as the manager of the decade. PIMCO’s flagship product, Total Return Fund, recorded nearly US$70-billion in net inflow last year (more than net inflows for the previous three years combined), pushing the fund’s assets to more than US$200-billion.

In his newsletter, Mr. Gross reinforced his view that a “new normal” will emerge in the aftermath of the latest financial crisis. The PIMCO thesis says households and firms in developed economies – whose banks were at the centre of the credit collapse – will spend years paying down debt and boosting savings. As a result, developed economies will record slower economic growth and lower returns on investment and financial assets.

Countries most at risk are identified by Mr. Gross as belonging to a so-called ring of fire, whose members include the United States, Britain, France, Japan and Italy. These countries run the risk of having public debt reach a level that surpasses the equivalent of 90% of GDP. Once that is reached, economic growth could slow by 1% or more, PIMCO’s calculations say.

In another category of countries belong economies such as Canada, Germany, Sweden, Norway and Australia, among others. These economies are “considered to be the most conservative and potentially the most solvent, with the potential for higher growth.”

Canada’s fiscal position has deteriorated sharply in the past year, with Ottawa set to record a $56-billion deficit this fiscal year. Nevertheless, Canada’s budget balance going into the recession was far superior to other major economies, and that should count for something, Mr. Gross said.

“Initial conditions are important because the ability of a country to respond to a financial crisis is related to the size of its existing debt burden and because it points to future financing potential,”

the newsletter said.

Despite Canada’s attractiveness, Mr. Gross said emerging economies, such as India, Brazil and China, are better positioned for growth, as they are starting off at much lower debt levels, measured as a percentage of GDP, compared to their developed peers.

Meanwhile, the old established Group of Seven nations, of which Canada is a member, “have lost their position as drivers of the global economy” as they focus on debt reduction.

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