[augiedoggie]

Your description would indicate your master cylinder is leaking and pulling air into your fluid as the plunger moves. I suspect rebuild or replacement of master cylinder will correct problem.

 

[augiedoggie]

My suggestion was made based on your observations and finding air bubbles in fluid. There would not normally be any reason for this air in master cylinder unless there were a leak in sealed system allowing it. If air was entering I would think the most likely entry point would be past seal on master cylinder piston. We would expect the air would rise through the fluid as you have observed. If the air were entering at a lower point in system I would expect you may find a fluid leak there. Hope that helps out. Good luck