Bund futures drop, ultra-long yields underperform

LONDON, Sept 2 (Reuters) - German Bund futures hit their lowest level since Aug. 23 on Thursday and ultra-long dated debt yields led the sell-off after Spain successfully sold five-year bonds at auction. [ID:nMDT009313] The Spanish/German 10-year bond yield spread tightened to 169 basis points, its narrowest since Aug. 20 and compared with 177 bps at the European settlement close on Wednesday ES10YT=TWEBDE10YT=TWEB.

Although in outright terms the Spanish bond yield rose it was by less than German Bunds.

"We had a good auction out of Spain. We're seeing a turnaround in flows from buying to selling for Bunds. It looks pretty vulnerable given how far it has come so quickly, we could see it go a bit lower from here," a trader said.

The September Bund future FGBLc1 fell as low as 132.71 after the Spanish auction. It was last down 40 ticks on the day at 132.83.

The 2/30-year German bond yield spread widened to 223 bps from 217 bps, and was at its widest since Aug. 24 as 30-year yields backed up more than 10-year yields DE30YT=RRDE10YT=RR.

"We are seeing a reversal of some of the trades from last week's long end curve flattening," Marc Ostwald, a bond strategist at Monument Securities in London said. (Reporting by George Matlock)