LONDON: German Bund futures hovered near record highs on Thursday as rapidly rising Spanish borrowing costs intensified expectations that Madrid may need outside help to save its banks and stave off contagion from the Greek crisis.

The European Commission said it was ready to offer Spain an extra year to reduce its budget deficit and direct aid to recapitalise its weak banks from the euro zone's rescue fund.

But it is member states who decide whether to adopt those proposals and Germany has so far opposed any collective banking resolution.

At 0606 GMT, Bund futures were flat on the day at 145.33, having hit a record high of 145.47 in the previous session. Ten-year cash yields were little changed at 1.27 percent. Two-year German yields hit a record low of 0.002 percent on Wednesday.

"It is going to get a lot worse before it gets better and the market perversely acts as it is not particularly long at these levels," one trader said.

Spanish 10-year debt yields rose to six-month highs of over 6.7 percent on Wednesday and they were seen heading towards the closely-watched 7 percent level, which is widely seen as unsustainable.

Ireland holds the only popular vote on Europe's new fiscal treaty on Thursday, with opinion polls pointing to a 'yes' vote that would save the euro zone from extra trouble.

"I think the Irish will vote 'yes' ... but I can't see why that should be a turning point for the periphery given the woes in Spain and obviously in Greece," the trader said.

A poll on Wednesday showed parties for and against Greece's bailout were very close to each other before a June 17 election that may decide whether Greece stays in the euro zone or not, keeping market uncertainty high.