According to a statement from Fidelity Fund, holding US bonds has been like waiting for returns since 2024. As early as December of last year, Federal Reserve Chairman Powell has strongly hinted multiple times that the long-awaited policy "turning point" is imminent, and the Fed will soon begin cutting interest rates. As a result, inflation in the US has remained high, delaying the rate cut. Meanwhile, developed market bonds outside the US have performed well due to weak economic growth and cooling inflation indicators in other regions. Interest differentials have reached extreme levels, and the market consensus is that this situation will continue. In the midst of general market confusion, the conditions favoring US bonds have matured and are expected to deliver outstanding performance. Of course, some catalytic factors are needed to change the situation. Fidelity Fund identifies three potential factors. The first factor: Continued Cooling of Core Inflation in the US Core consumer price inflation in the US hit a three-year low in April and recorded its first month-on-month decline since October of last year. There are good reasons to expect that the inflation trend for core services and goods will continue downward. One major component of core service inflation is Owners' Equivalent Rent (OER), which is the rent paid by property owners for living in their properties. While this does not directly reflect the actual costs borne by owners, it still affects inflation data and thus monetary policy. Leading indicators show that owners' equivalent rent is expected to continue declining: Chart 1 shows the New Tenant Rental Repeat (NTRR) index, calculated based on the leases of recently moved tenants, possibly leading to an overall average rent change. Furthermore, prices for core goods are still far above the level of inflation that reflects actual input costs. Therefore, if demand slows down, it should push inflation down continuously, providing more room for the Fed to cut rates. The second factor: American consumers facing pressure collapse Fidelity Fund believes that a slowdown in demand is inevitable; it's just a question of when it will occur. Fewer Americans are able to continue consuming in the post-outbreak manner. It is well known that low-income consumers are already under pressure, but the real income growth of middle-income consumers is only 25% of the 2023 level, and excess savings have been depleted, with cost of living pressures persisting. As consumers feel the pressure of rising costs, the number of people working multiple jobs to keep up with inflation is steadily increasing. However, this situation cannot continue indefinitely. The third factor: Labor market reversal (and demonstrating that the labor market is not as strong as expected) Despite a surprising increase in recent employment data, leading indicators of employment growth are currently showing a slowdown, including the NFIB's Small Business Hiring Intentions Survey. The survey results show that, apart from a recent minor increase, there has been a downward trend for the past six months, and the quit rate (people choosing to leave their jobs) has also decreased. Non-farm payroll data shows that recent employment conditions are strong, driven mainly by non-cyclical industries such as education, government recruitment, and some healthcare sectors. Employment in most other industries is either flat or declining. Part-time employment is seeing a sharp increase compared to full-time employment, with a rate similar to that of 2001 and 2007, a situation that has often led to a broader slowdown in the job market in the past. Interest rate restrictions are too strong Fidelity Fund's perspective is that the neutral real policy rate is far lower than the current level. As inflation cools, the real policy rate becomes more restrictive, requiring the Fed to cut rates at a faster pace than currently expected by the market. The speed of the inflation cooling will determine the pace of rate cuts, unless economic growth and labor market prospects are impacted, leading to an accelerated rate cut. The rate cut cycle may be further delayed, but there are more reasons to expect a reversal of the current general market view. If this shift occurs, high-quality US bonds are likely to perform well.