Deficit Threat Fuels Bond-Yield Surge
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Voting battles begin to pull the Supreme Court into the election. Plus, bond yields rise on expectations of higher deficits no matter who's in the Oval Office. And we'll take you inside Visa's decades-long battle to remain atop the payments world.

It's remarkable because of all the potential competition that had come up. One of the probably biggest dangers that Visa was facing was when Apple was looking to become big in payments and what would become Apple Pay. It's Tuesday, October 29th. I'm Luke Vargas for The Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving your world today.

A week out from Election Day, let's begin with the latest on the race for the White House. A pair of emergency voting appeals are dragging the Supreme Court into the election. Yesterday, the Republican National Committee and elections officials in Pennsylvania's heavily Republican Butler County asked justices to block authorities from counting provisional ballots cast by those whose previously sent mail ballots were invalidated by errors.

And in Virginia, the state's Republican attorney general has asked justices to revive a state voter purge that removed some 1,600 alleged non-citizens from the rolls after lower courts found that canceling voter registration so close to the election violates federal law. The Pennsylvania case could be the more significant, with both parties believing the state's 19 electoral votes could decide the presidential race.

We report that the FBI is investigating a pair of deliberate fires set at two ballot drop boxes in the Pacific Northwest. One fire in Vancouver, Washington may have burned hundreds of ballots, while a box targeted in Portland, Oregon was equipped with an internal fire suppressant that protected all but three ballots that had been dropped off.

The incidents, which police believe are connected, are raising alarm with state and federal officials who are on high alert for disruptions to the electoral process. In Oregon, Multnomah County Chair Jessica Vega-Peterson tried to reassure voters. Please do not let today's incidents or anything that happens between now and Election Day to keep you from expressing yourself with your vote.

Our democracy depends on you, and you can depend on us to keep this process safe and secure. That sound was courtesy of KATU.

And Amazon founder and Washington Post owner Jeff Bezos is defending the paper's decision not to back a presidential candidate, saying that endorsements create a perception of bias and do nothing to sway the race, though he conceded that the decision should have been made earlier. People close to the Post say it had already drafted an editorial in favor of Vice President Kamala Harris when word came down that there would be no endorsement.

a move critics said suggested the paper and Bezos were concerned about retribution should Donald Trump win the election. The Washington Post said Bezos hadn't seen a draft of any endorsement. Bezos' op-ed appeared as the Post struggles to contain subscriber defections in the wake of its decision.

Treasury yields are continuing their upward march, jumping yesterday after a $69 billion government auction of two-year notes attracted lackluster demand from investors. Journal markets reporter Caitlin McCabe told me yesterday's move is the latest leg in a multi-week sell-off that

That began after a run of strong economic data that undercut expectations of Fed rate reductions, but which is now being fueled by bets connected to the election. Most investors expect the budget deficit to remain elevated no matter who wins next week, meaning that the cost of government programs will continue to exceed federal revenues.

But analysis has showed that the deficit is expected to expand by a much larger amount under a Trump administration, especially if there is a Republican wave in Congress as well. And so this all goes back to the bond market because typically with a growing deficit, the government will need to issue more debt to help cover the shortfall of revenues.

And so there is this very real worry in the market right now about supply. You know, when there's more supply, bond prices typically will fall and that sends yields higher.

And Caitlin, I gather we're not expecting that supply to ease up at all. No, the auctions are not poised to get smaller anytime soon. The Treasury Department will release its quarterly borrowing plans on Wednesday, and it's expected to maintain record large debt sales over the next three months. And some analysts say there's a chance that it could hint that further increases are coming next year. Yeah.

And in other market action on our radar, five of the magnificent seven tech companies are due to report earnings this week. And Journal lead markets writer Gunjan Banerjee told us what she'll be watching over the next few days. We have Apple meta earnings coming up, and I think that's going to be a really interesting test for the AI trade, which has kind of started to fizzle recently. And I wonder if people started to pile into these tech stocks.

at kind of the wrong time. I was looking at some Morningstar data. It showed that investors have poured more than $18 billion into tech funds this year. That's more than every other S&P 500 sector combined.

And yet we've seen the rally kind of broaden. We've seen small stocks doing well. So I think the next few days are going to be super interesting for that trade. Google parent Alphabet will kick things off with its results later today, with earnings updates also due from Pfizer, McDonald's, PayPal, Chipotle and Visa. And coming up, speaking of Visa, we'll take a closer look at how the payments giant beats back its foes to keep its dominant position. We've got that story and more after the break.

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Visa is set to report earnings this afternoon, with analysts broadly expecting the company behind the largest card network in the U.S. to rake in around $20 billion in annual net income.

To grow to such heights, the journal's Ana Maria Andriotis reports that Visa has been engaged in a decades-long battle for control of how American consumers pay for everything, a battle the company is winning, and which she joins me now to discuss. Ana Maria, for your recent reporting, you spoke to former Visa executives as well as current and former execs at companies that have tangled with Visa to just

basically learn how time and again the company has found ways to keep its competitors from encroaching on its territory. And I'll encourage all of our listeners after this interview to go and read your article in full because there's lots of examples in it of how this may have happened with PayPal, with Square, with Plaid. But let's pick a different context

company here, a different case study and dive in deeper. It involves Apple. Tell us what you've learned happened there. One of the probably biggest dangers that Visa was facing was when Apple was looking to become big in payments and what would become Apple Pay. So what is one of the threats that Apple presents to Visa? The fact that so many people use Apple services, right, or devices that engage with Apple on a daily basis, right?

Visa saw Apple Pay as an existential threat to its debit business. This was found in the DOJ's recent lawsuit alleging that Visa is engaging in anti-competitive behavior in the debit card space. But Visa also knew that Apple had had conversations about avoiding Visa and MasterCard networks.

So what effectively played out is that my sources told me that, you know, this emergency meeting was called where Visa executives, MasterCard executives were present. And the purpose of this meeting was to basically figure out, OK, how are we going to make this work and have cards added on to Apple Pay? So both of the networks basically gave Apple unusual concessions.

At the same time, one of the things that was really interesting from the DOJ's recent lawsuit against Visa was that it basically said that Visa's strategy has been to align its incentives with Apple, which Visa refers to as a, quote, "mutually assured destruction principle."

And what we see so far is that the ability for consumers to pay a merchant using Apple Pay with some other mechanism that competes directly against the card-based model just isn't there. If I'm understanding correctly, Anna Maria, basically they got Apple to agree just not to develop their own card network that would have competed with Visa's, right?

So the reporting that I've done shows that Apple agreed not to develop its own network to compete with Visa and MasterCard. The DOJ, in its suit against Visa, said that Apple agreed not to develop payment methods that compete against Visa.

For its part, Visa says that it does not have an agreement with Apple prohibiting Apple from developing a card network. And Apple says that it doesn't have agreements with any Apple Pay issuers or payment networks that restrict its ability to innovate or to enter into new businesses.

Just looking ahead here, is it likely Visa is going to be able to retain this pole position within the payments world? I mean, you've mentioned this Justice Department suit last month against Visa. I'm curious how serious that's being viewed within the company. The DOJ lawsuit is striking at the heart of what makes Visa so powerful. It's massive debit business. Visa has described that as meritless and said that it will defend itself vigorously. It's not the only major risk.

that Visa currently faces. There has been a long-running lawsuit brought by merchants that alleges that Visa, MasterCard, and large U.S. banks restrict competition. And in June, the judge presiding over this class action case rejected a settlement that

that the networks and the large banks had reached with the plaintiffs and said it was time for trial. Anna Maria, Visa, MasterCard, and the bank defendants have spent nearly 20 years fighting parts of this suit. What has Visa said, not just about that suit, but more generally about how it approaches competition? Visa says that it is pro-competition.

that it ignites and supports innovation and commerce, and that anyone who asserts anything to the contrary is just plain wrong and does not understand its business. It says that it competes for every transaction. It invests billions in its network each year for the benefit of partners, merchants, and consumers. I've been speaking to Wall Street Journal reporter Anna Maria Andriotis. Anna Maria, thank you so much. Thank you.

And Israel is cutting ties with the United Nations Agency for Palestinian Refugees, which is largely seen as the backbone of efforts to provide humanitarian aid in Gaza. Given that Israel currently manages all ports of entry into Gaza, the legislation passed yesterday will make it harder for the agency, known as UNRWA, to operate in the Strip.

State Department spokesman Matthew Miller said yesterday that there is no organization that can replace it in the middle of Gaza's humanitarian crisis. UNRWA has long had a tenuous relationship with Israel, which has repeatedly accused the agency of having ties to Gaza-based militants. UNRWA chief Philippe Lazzarini tweeted yesterday that the law set a dangerous precedent and said it was part of Israeli efforts to discredit the agency and delegitimize its work.

And that's it for What's News for Tuesday morning. Today's show was produced by Daniel Bach and Kate Boulivant with supervising producer Christina Rocca. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening. This message comes from Wall Street Journal sponsor C3.ai.

C3 Generative AI enables rapid access to secure, traceable, hallucination-free insights from enterprise systems, all while using any LLM, helping enterprises turn the invisible into the obvious. Learn more at c3.ai. This is Enterprise AI.