There used to be two sure things in retail banking: variable mortgage rates followed movements in the cash rate and fixed rates followed longer-term wholesale rates.But things have changed. Last year, lenders broke the link between the cash rate and their variable rates, arguing that they needed to consider the overall cost of funds when setting rates.And this year lenders have been fighting for market share by offering ever lower fixed rates at a time when you would have expected fixed rates to rise.When a bank sells a fixed-rate loan it uses a swap to hedge its interest rate exposure. The swap rates move in line with bond and other wholesale fixed-income rates of equivalent maturities.Since early May, three-year government bond rates have climbed from around 2.5 per cent to more than 2.65 per cent. In normal circumstances you might expect to see that 15 basis point increase reflected in three-year fixed mortgage rates.However, according to Infochoice, during the June quarter 61 lenders cut their three-year fixed rate by an average of 17 basis points. Last week, four lenders cut their fixed rates by 10 to 20 bps.Fixed rates for other terms have also been coming down. Infochoice said the average reduction on one-year rates during the June quarter was also 17 basis points.At the end of June, the average one-year mortgage rate was 5.1 per cent - down from 5.47 per cent at the end of January. And the average three-year rate was 5.18 per cent - down from 5.53 per cent at the end of January.Overall, bond and other wholesale rates have been edging up since the middle of last year, but mortgage lenders have ignored the trend.Canstar research manager Mitchell Watson said high demand for fixed rates was having an impact on pricing. Brokers report close to 30 per cent of borrowers opted for fixed-rate mortgages this year, which is well above the long-term average.Watson said that when demand for fixed-rate loans eases off rates will start to climb.Citibank's head of mortgages, Vibha Coburn, said Citi's view on long-term rates was that they were volatile but the trend was flat.Coburn said: "When we price, we look at consumer demand, what the competition is doing and the trend in the curve. We see rates in a range this year."The chief executive of lender State Custodians, Heidi Armstrong, said competition was the primary consideration in setting rates in the current market. State Custodians re-priced its loans earlier this year, and last month had its biggest month in two years."From where we sit, we think there is room for our rates to go lower," she said.