When to use a Swaption Collar

Hi,

Struggling with when to use a Swaption Collar.

Summary point from page 110 of Reading 19 says

“… If rates are expected to go up, the swaption collar can become attractive…”

If rates are expecting to go up doesn’t this mean:

  1. you don’t need the downside protection of a Receive Fixed to begin with (even if it was zero-cost); and
  2. the plan will need to start paying the Pay Fixed holder once the strike price reached; eating into plan asset returns(?)

Is there industry specific detail here I am missing like ‘Zero-cost hedge is more valuable vs the losses that the portfolio would make due to having to pay floating, as assets are going up (faster than the liability due to shorter duration)’ or have I missed something more fundamental?

Many thanks