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6667540005APRIL 201900APRIL 2019-457200-45720000 50165-1270Fixed Income Monthly00Fixed Income Monthly0125730FOR INVESTMENT PROFESSIONALS ONLY00FOR INVESTMENT PROFESSIONALS ONLY490537510160000FIXED INCOME MONTHLYFOR INVESTMENT PROFESSIONALS ONLYMarch 20193Strategy Summary HYPERLINK \l "MacroandRatesOverview" 5Macro and Rates OverviewImportant Information This information is for Investment Professionals only and should not be relied upon by private investors. It must not be reproduced or circulated without prior permission.The value of investments and the income from them can go down as well as up so you may get back less than you invest. Past performance is not a reliable indicator of future results.Bond investments: Fixed income funds invest in bonds whose price is influenced by movements in interest rates, changes in the credit rating of bond issuers, and other factors such as inflation and market dynamics. In general, as interest rates rise the price of a bond will fall. The risk of default is based on the issuer's ability to make interest payments and to repay the loan at maturity. Default risk may, therefore, vary between different government issuers as well as between different corporate issuers.Corporate bonds: Due to the greater possibility of default an investment in a corporate bond is generally less secure than an investment in government bonds.High yield bonds: Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the Fund investing in them.Overseas Markets: Some fixed income funds may invest in overseas markets. The value of the investment can be affected by changes in currency exchange rates.Currency Hedging: Currency hedging is used to substantially reduce the risk of losses from unfavourable exchange rate movements on holdings in currencies that differ from the dealing currency. Hedging also has the effect of limiting the potential for currency gains to be made.Emerging Markets: Fund investing in emerging markets can be more volatile than other more developed markets.Derivatives: Some fixed income funds may make use of derivatives and this may result in leverage. In such situations performance may rise or fall more than it would have done otherwise. The fund may be exposed to the risk of financial loss if a counterparty used for derivative instruments subsequently defaults.Hybrid securities: Hybrid securities typically combine both equity and debt sensitivities and exposures. Hybrid bonds are subordinated instruments that have equity like characteristics. Typically, they include long final maturity (or no limitation on maturity) and have a call schedule increasing reinvestment risk. Their subordination typically lies somewhere between equity and other subordinated debt. As such, as well as typical ‘bond’ risk factors, hybrid securities also convey such risks as the deferral of interest payments, equity market volatility and illiquidity. Contingent convertible securities (“CoCos”) are a form of hybrid debt security that are intended to either convert into equity or have their principal written down upon the occurrence of certain ‘triggers’ linked to regulatory capital thresholds or where the issuing banking institution’s regulatory authorities considers this to be necessary. CoCos will have unique equity conversion or principal write-down features which are tailored to the issuing banking institution and its regulatory requirements. Other: Fidelity Funds do not offer any guarantee or protection with respect to return, capital preservation, stable net asset value or volatility. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon.Strategy SummaryThe FIXED INCOME MONTHLY provides a forward-looking summary of the medium-term views from the 71793104699000Fidelity Fixed Income team. Our investment approach is multi-strategy, with portfolio managers given clear accountability and fiduciary responsibility for all investment decisions in a portfolio. Given this portfolio manager discretion, there may at times be differences between strategies applied within a fund and the views shared below. We believe in managing portfolios with a mix of active investment strategies, including top-down and bottom-up, such that no single strategy dominates risk in a fund.Rates–?––=+++Duration UST Rates EUR Rates - Core EUR Rates - Periphery GBP Rates Inflation–?––=+++Developed Markets InflationIL – US IL – EURIL – GBP Investment Grade Credit–?––=+++Investment Grade Credit Beta USD IG EUR IG GBP IG Asian IG (USD) Financial and Corporate Hybrids–?––=+++Financial and Corporate HybridsContingent ConvertiblesInvestment Grade Corporate HybridsHigh Yield–?––=+++High Yield Credit BetaUS High YieldEuropean High YieldAsian High YieldEmerging Markets–?––=+++EM Hard Currency Sovereign DebtEM Hard Currency Corporate DebtEM Local Currency Duration EM FXChina RMB Debt71793104699000Past performance is not a reliable indicator of future results. The value of investments and the income from them can go down as well as up so you may get back less than the amount originally invested.Source: Fidelity International, Bloomberg, JPM and ICE BofA Merrill Lynch bond indices. 29 March 2019. Shows yield to worst for high yield and EM, yield to 3yrs for USD Loans, real yield for inflation-linked bonds, yield to maturity for all other asset classes. The Yield to Maturity (also known as the Redemption Yield) is the anticipated return on a bond / fund expressed as an annual rate based on price / market value as at date shown, coupon rate and time to maturity. The redemption yield is gross of any charges and tax. Yield to Worst: is the lowest potential yield that can be received on a bond considering all potential call dates prior to maturity. Hybrids universe defined as 50% Corporate Hybrids and 50% Financial Hybrids indices.Summary of returns as at 29 March 2019 (%)Government YTDMar’19 - Mar’18Mar’18 - Mar’17Mar’17 - Mar’16Mar’16 - Mar’15Mar’15 - Mar’14US Treasuries2.24.30.5-1.52.46.1EUR Bunds2.14.3-0.4-0.60.511.5UK Gilts3.63.90.96.93.314.7Inflation Linked USD3.42.71.11.51.43.8EUR1.3-1.24.70.1-2.310.9GBP6.05.61.520.41.818.6Investment Grade Corporate USD5.05.02.63.41.06.8EUR3.12.31.82.50.57.3GBP4.74.01.710.60.213.7Asian Dollar4.56.01.43.03.38.3Financial and Corporate HybridsContingent Convertibles5.82.58.815.1-0.67.5Investment Grade Corporate Hybrids5.72.76.89.7-2.910.5High YieldUS7.45.94.116.9-4.02.1European5.42.14.310.32.94.8Asia7.95.21.715.32.64.8Emerging Markets EM USD Sovereigns7.04.24.38.94.44.1EM USD Corporates5.24.63.78.72.84.5EM Local Currency (USD unhedged)2.9-7.613.05.5-1.6-11.1China RMB2.56.64.94.15.12.4Past performance is not a reliable indicator of future results. The value of investments and the income from them can go down as well as up so you may get back less than the amount originally invested. Source: Fidelity International, Datastream, 29 March 2019. Total Returns based off JPM and ICE BofA Merrill Lynch bond indices. Macro and Rates OverviewMonthly ReviewStrategy–?––= +++Government bond yields dropped in March as an increasing number of central bankers shifted to a more dovish tone.The yield on US 10-year Treasuries touched its lowest in almost 16-months. At its March monetary policy meeting, the FOMC kept its interest rates unchanged but reiterated a cautious stance and now sees no more hikes in 2019.German Bund also gained ground. 10yr German yields traded below their Japanese counterparts for the first time since 2016, amid deteriorating outlook for euro areaDuration UST Rates EUR Core EUR PeripheryGBP Rates OutlookCentral banks stole the show yet again during the quarter that just came to an end. A broad-based shift towards a more dovish stance, led by the Federal Reserve helped support risk sentiment and lifted all asset classes, a mirror image of the grim returns registered in 2018.Rising concerns of a renewed global growth slowdown were largely ignored by risky assets, with the S&P having its best quarter since 2019, and WTI oil its best quarter ever. In fixed income, government bond continued the rally that started at the end of 2018. Looking back at Q4 last year, there were three main drivers behind the selloff in risk, and rally in rates: oil prices, US housing and inflation expectations. All three of these turned sour in the latter part of 2018, hampering risk sentiment, tightening financial conditions, and eventually getting the market to review the expectations for the Fed and for rates. Year to date, however, data points to a rebound in all three areas. An improvement in Chinese PMIs has also been a tailwind for risk more recently, although we would need further confirmation from upcoming data releases. In the US, the Fed’s focus has clearly shifted from growth to inflation, aiming to increase inflation expectations with a perhaps unnecessarily dovish twist. One more rate hike this year is possible, although on balance they will let the economy run hotter than normal. With growth low, core PCE below 2% and unlikely to rise at least before Q3, policy will remain dovish for a few more months and unless higher inflation picks up meaningfully, yields are unlikely to rise much from here. Investor sentiment is also skewed, a “buy the dip” mentality prevails in US Treasuries (USTs), and there are signs of caution and profit taking in risky assets. As the probability of a pullback in equities coming sooner rather than later increases, we are likely to see more hedging, with increasing demand for USTs, especially if inflation remains in check. Given where valuations are for risky assets globally, the technical picture now more supportive, and no clear catalyst for the Fed to be anything but dovish in the near term, we tactically favour a more constructive stance to USTs. Our cross-market models are also positive on US duration, based on relative valuations.If in the US it is all about inflation, in Europe it is all about growth. European manufacturing has been a very weak spot of late and dragged overall activity lower. German new orders, for example show a clear split between domestic and foreign orders, with domestic demand in good shape, while external demand, particularly from China, still in the doldrums. Positioning appears stretched however, with the market long European duration. While data in Q1 has been particularly bad, we may be at peak pessimism as far as European rates are concerned. Global trade is stabilising, domestic contribution is ok, and fiscal policy is a tailwind this year, particularly in Germany (0.4-0.8% of GDP) and will pick up in Q2). Inflation may remain below target for years to come but Bund yields will start moving higher if data picks up or at least stabilises. The tiering debate that is taking place at the ECB should not be viewed as a precursor to rate cuts, but rather as the ECB improving and expanding its toolkit. Moreover, the implementation of any tiering system will be all but easy, given the Eurozone’s very fragmented banking sector.In European periphery, we keep a neutral stance, although with differentiation at country level. Italy in particular is back on investors radars. Despite the benign risk backdrop, BTPs continue to drift wider. It is likely that both domestic and foreign institutions frontloaded their purchases, leaving fewer marginal?buyers available ahead of a busy schedule, with European elections, rating reviews and another round of negotiations with the EU on the 2020 budget all coming up. With more volatility likely ahead, we have trimmed some of our exposure.Lastly in the UK, the Brexit debate is not getting any clearer. The case for lower Gilt yields is harder to make, with softer Brexit scenarios becoming more likely, and the increased weight that Corbyn has gained in the discussions. Now that data globally is also stabilising, there is room Gilt yields to rise from here and we move to an underweight stance.Manufacturing has been the weak spot in DMBTPs poised for more volatility aheadSource: Markit; Haver Analytics, Fidelity International, March 2019Source: Fidelity International, Bloomberg, 4 April 2019.Important Information"This information must not be reproduced or circulated without prior permission.Fidelity only offers information on products and services and does not provide investment advice based on individual circumstances, other than when specifically stipulated by an appropriately authorised firm, in a formal communication with the client. Fidelity International refers to the group of companies which form the global investment management organisation that provides information on products and services in designated jurisdictions outside of North America. This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required.Unless otherwise stated all products and services are provided by Fidelity International, and all views expressed are those of Fidelity International. Fidelity, Fidelity International, the Fidelity International logo and F symbol are registered trademarks of FIL Limited. Issued by: FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) / FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA / FIL Gestion, authorised and supervised by the AMF (Autorité des Marchés Financiers) N°GP03-004, 29 rue de Berri, 75008 Paris. For German Wholesale clients issued by FIL Investments Services GmbH, Kastanienh?he 1, 61476 Kronberg im Taunus. For German Institutional clients issued by FIL Fondsbank GmbH, Kastanienh?he 1, 61476 Kronberg im Taunus. For German Pension clients issued by FIL Finance Services GmbH, Kastanienh?he 1, 61476 Kronberg im Taunus.China: Institutional clients - This material has been requested by you in China and has been prepared by Fidelity to you in China only for informational purposes to institutional investors. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, the mainland China.Qualified Domestic Institutional Investors (QDII) business - This material has been requested by you in China and has been prepared by Fidelity to you in China only for informational purposes in relation to Qualified Domestic Institutional Investors (""QDII""). Investors should refer to the relevant offering document for full details before investing in any investment funds mentioned herein and to seek professional advice through commercial bankers in the PRC under regulations by the CBRC, where appropriate. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, the mainland China.Hong Kong: Please refer to the relevant offering documents for further information including the risk factors. If Investment returns are not denominated in HKD/ USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. The material is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Futures Commission (“SFC”).Korea: This document is for intermediaries’ internal use only (or institutional investor) and not for external distribution or fund promotion. All external distribution, amendment and variation of this information require prior written approval from Fidelity International. Fidelity International is not responsible for any errors or omissions relating to specific information provided by third parties. All views may have changed due to market movements or other circumstances thereafter. Please read the (simplified) prospectus thoroughly before you subscribe to any specific fund. Profit or loss that can be incurred in accordance to outcome of management and currency exchange fluctuation is reverted to investors. Past performance is no guarantee of future returns. The investment is not protected by Korea Deposit Insurance Corporation under Investor Protection Act. Investment involves risks. Funds investing in foreign markets are open to risks related to country’s market, political and economic conditions which may cause loss on asset value. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.Singapore: FIL Investment Management (Singapore) Limited [“FIMSL”] (Co. Reg. No.: 199006300E) is the representative for the fund(s) offered in Singapore. Potential investors should read the prospectus, available from FIMSL, before investing in the fund(s). "FIPM 3735 ................
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