We have a application which uses fiddler SDK for C#, using which we capture all the request and response for the websites mentioned in the PAC file. But if fiddler is running (Fiddler application or Our own application), we are not able to login in Teams.
Things I already tried: Fiddler.CONFIG.sHostsThatBypassFiddler = "VPN URLs";
It might not be the cause of your issue, but I experienced something similar when the "Decrypt HTTPS traffic" option was checked. And that because Fiddler uses a self signed ssl certificate of its own in order to decrypt the https traffic.