Thirty years after George Soros broke the Bank of England, foreign hedge funds are circling again. And this time they're eyeing up the Government's bond market.

It may sound like a boring trade, but investors are making huge profits by borrowing tens of billions of pounds against UK debt, known as gilts.

The aim? To profit from minute differences between the cash price of a bond today and what it may be worth several days, weeks or months from now.

This strategy, known as a "basis trade", makes money by exploiting the tiny gap between the two prices - buying one for a lower price and selling another for a higher price in a good old fashioned game of arbitrage.

Such is the high risk, low reward nature of these types of trades, that they have been likened to "picking up pennies in front of a steamroller".

But these "masters of the universe", as Tom Wolfe once wrote, are far smarter than that. To really make it worth their while, hedge funds borrow money from banks to juice up their returns - turning these fractional pennies into big bucks.

Yet such is the popularity of the strategy that regulators are now becoming increasingly alarmed about the dangers these funds pose to the British financial system.

In many ways, their involvement has been welcome. Hedge funds - which face less regulatory scrutiny than banks - are performing the role of linking buyers and sellers that used to be done by more traditional lenders.

Thriving in an environment of high volatility, hedge fund traders are able to let their hair down in a way that banks cannot.

However, as Richard Hughes, the chairman of the Office for Budget Responsibility recently highlighted, these "fickle and flighty" investors are more likely to be looking for short-term gains than a long-term relationship.

"These overseas investors are, by their nature as comparison shoppers in the global debt market, likely to be more fickle and flighty than their domestic counterparts," he warned last month.

Andreas Dombret, a former German central bank official, puts it more simply: "They're the first to leave the party if things get rough."

The Bank of England is also keeping a close eye on developments. Its latest Financial Stability Report (FSR) warned that the big global footprint of these funds "increased the risk that stress in one market could spill over into others" - triggering huge fire sales in times looming financial chaos.

So what could go wrong?

The role of hedge funds in the bond market has grown significantly in recent years.

Earlier this year, Bank deputy governor Sir Dave Ramsden said that hedge fund involvement in the gilt market had almost doubled from 15pc of trades in 2018 to around 30pc today.