Bottom line, nobody knows the future so this is speculation to some degree. There are a few different scenarios that one may want to jump into a swap, but it really is dependent on your expectations of future interest rates or the need to hedge. Apple has done these with all their cash reserves.
Relevant Template:
Generally, interest rate swaps can be used to manage interest rate risk or to take advantage of interest rate differentials. In a rising interest rate environment, fixed-rate payments may be more attractive, while in a falling interest rate environment, floating-rate payments may be more attractive.
Therefore, the best time for an interest rate swap would depend on the borrower's view of the future interest rate movement. If the borrower expects interest rates to rise, it may be a good time to enter into a fixed-rate swap. On the other hand, if the borrower expects interest rates to fall, it may be a good time to enter into a floating-rate swap.
Fixed vs Floating Rate Swap
This just depends what side of the swap you are on. If you think rates are going up, you want to be receiving the floating rate and paying a fixed. If you think rates are going down, you want to be receiving the fixed amount and paying the floating amount.
Non-Speculative Reasons for an Interest Rate Swap
- Managing interest rate risk: If a borrower has exposure to interest rate risk, such as a variable-rate loan or debt instrument, they can use an interest rate swap to convert their variable-rate payments into fixed-rate payments or vice versa. This can help them manage their cash flow and reduce the impact of interest rate fluctuations.
- Taking advantage of interest rate differentials: If a borrower has access to lower borrowing rates in one currency or market, they can use an interest rate swap to convert their borrowing into a different currency or market. This can help them take advantage of interest rate differentials and potentially reduce their borrowing costs.
- Matching asset and liability durations: If a borrower has long-term liabilities and short-term assets, they can use an interest rate swap to convert their short-term assets into long-term assets. This can help them match the durations of their assets and liabilities and reduce their exposure to interest rate risk.
- Hedging against currency risk: If a borrower has exposure to currency risk, such as international trade or investments in foreign markets, they can use an interest rate swap to hedge against currency fluctuations. This can help them manage their foreign exchange risk and reduce the impact of currency fluctuations on their cash flow.
