GEEZ Man, just look at your own graph. The first is already showing a direct correlation with yield rates and inflation. You don't even know how to read your own graphs.
It is not correlation.
The FED tried to increase the inflation by decrease the yield, and failed.
Now you have to understand what happened on the second graph. QE is happening to mop up all the excess debt that caused the 2007-2008 financial crisis. The economy is recovering and growing. Maybe you should be honest and show the rest of the graph that includes 2014 to 2017 where the curve flattens because the Fed is in uncharted territory and uncharted territory makes investors nervous.
It is straight simple: You said that the increased treasury holdings by FED increase the inflation.
Simply by checking the graph it showing that the treasury rate was low AND the inflation was low AND the treasury holding of FED was high.
So , NO the theories that saying "bad things happens if the FED buy the Chinese treasuries" is false.
However the FED can gives only dollars for those treasuries, still a question what the Chinese central bank will do with the dollar notes? Or with the dollar deposit at the FED?
Considering that the deposit will not pay interest ....