LONDON, July 18 (Reuters) - The premium investors demand for holding Spanish government bonds over top-rated German peers on Tuesday dropped below 100 basis points to its lowest level since September 2016, reflecting an outperformance of peripheral bond markets.

Analysts said investors were taking the opportunity to take a long position - essentially a bet that an asset will strengthen in price - over the summer months given the higher yields offered by lower-rated southern European bond markets.

Spain's 10-year bond yield fell 4 basis points to a two-week low at 1.548 percent, pushing the gap over German Bund yields to around 98 basis points - the tightest since September 2016.

"The consensus is that in the absence of negative drivers, one should enjoy the positive carry offered by peripheral bonds and go long," said Richard McGuire, head of rates strategy at Rabobank. (Reporting by Dhara Ranasinghe; Editing by John Geddie)