“I’ve been around for 30 years and that includes having gone through 1994 when we probably had about the only savage bear market in bonds” over those three decades, O’Neill, 53, said in an interview in London today on Bloomberg Television’s “On The Move” with Francine Lacqua. “There are a number of circumstances that could lead to a repeat of that, probably the most important one being a very dramatic recovery in growth.”

Treasurys lost 3.3 percent in 1994, according to data from Bank of America-Merrill Lynch & Co., as the Fed almost doubled the target for the federal funds rate to 5.50 percent in response to inflation threats. Treasurys returned 5.9 percent last year even after a 2.7 percent loss in the fourth quarter, the Bank of America-Merrill Lynch data show.

“If we have continued signs of a vigorous U.S. recovery, at some stage the Fed’s going to change their view of the world, and that’s what caused the damage in 1994,” O’Neill said. “So I’m very mindful and on the lookout for that because it might not be very pleasant if it happens.”

Bull Market

Pacific Investment Management Co. Co-Chief Investment Officer Bill Gross said last month that while he anticipates the end of the bull market in bonds, it’s not the beginning of a significant bear market as economic growth and government stimulus fail to translate into broader employment gains. Pimco reduced its holdings of government related debt to the lowest level since January 2009 last month.

O’Neill said today the U.S. won’t suffer the same fate as debt-stricken euro-area members over its budget deficit. The European Union and the International Monetary Fund last year approved rescue packages for Ireland and Greece after concerns about mounting shortfalls pushed up bond yields and eroded confidence in the single currency.

European leaders meet on March 11 at a special 17-nation euro-region summit to agree on a comprehensive package to resolve the region’s debt crisis.

“I don’t think we have a sovereign-debt crisis in Europe. It’s a crisis about European Monetary Union structure and leadership,” O’Neill said. “It’s a test in some ways of Germany’s desire and if Germany stands behind this thing in March full square and simple, European bonds will turn out to be one of the best investments this year.”

In a separate radio interview on “Bloomberg Surveillance” with Tom Keene today, O’Neill said mounting concerns about a pickup in global inflation was “good” because it will prompt policy makers to act.

“If one of the consequences of getting out of this mess is that we sow the seeds for a big pickup in inflation, undoing arguably the best thing that’s happened to the whole world, developed and developing, in my 30 years, that would be bad,” he said. “But in that sense, we’re all sort of vigilantes and I think it’s very difficult for inflation to pick up significantly because it forces a policy response to stop it.”