Source: Bloomberg

Banks dominated European stock gains in the wake of the French elections, with Germany’s Commerzbank up 9.5% and Deutsche Bank up by 7.5%. The big French banks gained 8% to 10%.

Banks did best because they were most affected by the threat to the Eurozone. The prospect of a French withdrawal from the European Union–raised by National Front candidate Jean-Marie Le Pen–would have devastated the credit of borrowers in France and in Europe’s Club Med periphery. If France were to abandon the Euro (for example) and adopt a new and devalued French franc, the dollar and Euro debt of French firms would soar relative to their devalued earnings.

European credit was also a huge winner, with the cost of credit default swap protection on a basket of “crossover” (borderline high yield) names falling from +68 basis points above the interbank rate to +62.