Fidelity's Chief Fund Manager Rick Patel and Co-Fund Manager Daniel Ushakov wrote that the credit spreads between investment-grade credits in the United States and Europe have been widening due to rising interest rates rather than significant fund outflows. Although Fidelity sees some value in credit spreads, they do not see it as a "go all in" buying opportunity. After careful analysis, Fidelity found that the current credit spreads for investment-grade credits in Europe are still relatively narrow compared to when the spreads widened due to the French presidential election in June. However, Fidelity has selectively increased holdings in underperforming sectors. As of August 5th, the four underperforming sectors in investment-grade bonds include emerging market sovereign debt, the automotive industry, 3-5 year callable bonds, and recently upgraded high-yield bonds to investment-grade. Fidelity has selectively invested in the latter, and is also looking for opportunities in callable bonds and emerging market sovereign debt. If credit spreads are further squeezed, Fidelity may consider increasing investments on a larger scale. Fidelity stated that they have believed that the market has not yet fully digested the growth prospects and the weak labor market trend. Therefore, in Fidelity's global and U.S. comprehensive bond portfolios, Fidelity believes that yields on developed market government bonds provide tremendous value, and therefore they are relatively overweight on the dollar, pound, and euro denominated bonds. In the credit markets, Fidelity has also taken a defensive stance, preferring high-quality issuers and short-term bonds. Global markets have been highly volatile in recent days. Although weak economic data triggered a slight drop in yields on developed market government bonds in July, on the last day of July, Federal Reserve Chairman Powell made moderate remarks, leading investors to believe that the United States may cut interest rates significantly earlier than currently expected, boosting market confidence. With risk aversion rising in the equity and fixed income markets, along with weak nonfarm payrolls and rising unemployment, expectations for rate cuts have deepened. While these developments favor Fidelity's overall allocation, they are also evaluating whether these trends are reasonable. Fidelity said that at the moment, inflation has been completely ruled out, and all eyes are focused on the labor market and how it will impact the Fed's decision at the upcoming meeting. Fidelity believes that details of recent and future labor market data are crucial, and they are also analyzing what risks are lurking beneath the common market views. Economic analysts point out that the "Sam" rule currently signals an economic recession. Historically, the trigger for the "Sam" rule has been widespread unemployment in multiple industries. Then, unemployment leads to reduced consumption, which in turn leads to further unemployment. By contrast, what we are seeing recently is more people entering the labor market, leading to a surge in unemployment. The number of initial jobless claims is still far lower than during past periods that triggered the "Sam" rule, and current consumption is also far stronger than in those periods. Nevertheless, Fidelity has started to see more traditional trends emerging. A leading tech company recently announced a 15% workforce reduction, reflecting a potential shift away from the practice of maintaining excess labor. If this strategy becomes more common, the supply-demand balance will further be disrupted, leading to an increase in unemployment. Fidelity's long position in duration is based on the view that the Fed needs to take action 6 to 12 months before the economy slows down. Leading indicators also show that the Fed needs to act soon. The expectations currently reflected in various markets are closer to Fidelity's view that the Fed needs to adjust policy rates to prevent a broader economic slowdown. Therefore, Fidelity has not adjusted their duration holdings based on recent trends. While Fidelity is confident, they have maintained a relatively low holding in U.S. duration due to the perceived upside risk in U.S. Treasury yields caused by the U.S. elections. Although many had previously thought that Trump would win, and if elected, his aggressive fiscal policies would be the focus, the political landscape in the U.S. is rapidly changing. Fidelity believes that the increased popularity of Harris in the polls means that the upside risk in long-term U.S. Treasury yields has decreased. The next release of initial jobless claims will be crucial, as Fidelity will use it to gauge whether the weakening trend in the labor market is as widespread as recent non-farm payroll and unemployment data suggest. If this data supports recent non-farm data, the Fed may need to consider additional factors. Conversely, if the trend is low, it may indicate an overreaction in U.S. Treasury yields, and Fidelity may adjust their duration holdings accordingly.