Global markets have embraced the end of the zero interest rate policy era in the US, sending international stocks higher and quelling fears that investors would recoil at the prospect of higher interest rates.

The dollar climbed sharply against most major currencies in the wake of Wednesday’s historic US interest rate increase – the first in almost a decade – which dented commodity prices and weighed on the S&P 500, which gave up some of Wednesday’s gains to slip 1.1 per cent.

Yet international markets welcomed the clarity the Fed’s move brought after years of concern over the threat a mismanaged US monetary tightening policy cycle could have on the global financial system.

Fund managers said the positive initial reaction indicated Fed chair Janet Yellen and her colleagues had managed to pull off a widely-debated interest rate “lift-off” without the turbulence that accompanied the end of quantitative easing.

Big relief

“I’m struggling to see where they got anything wrong,” said Robert Michele, chief investment officer of JPMorgan’s asset management arm. “That’s a big relief.”

The Eurofirst 300 climbed for a third straight day, led by strong gains in the German Dax, and the main market gauges of China and Japan both rose. Bourses in the developing world also rallied strongly.

Bond markets reacted calmly to the Fed’s decision, sending borrowing costs down for most major countries. After nudging higher on Wednesday the US 10-year Treasury yield dipped five basis points to 2.25 per cent yesterday. The equivalent yields for Germany, the UK and France fell sharply to 0.6 per cent, 1.86 per cent and 0.94 per cent respectively. The Move index, a gauge of bond market fear, also declined markedly. – Copyright The Financial Times Limited 2015