This chart, to me, demonstrates a term shift. Since the primary dealers are resellers of Treasuries, their inventory mix represents inverse demand by their customers, the more primary dealers hold, the less their customers want.
With this interpretation, consumers of Treasuries want a total of less across the board, hence the jump in total holding. The 6-11 years inventory has remained the same, which seems natural since this is a pivot point of the Treasury curve, the point where the curve is inflects. The demand for short term treasuries is declining, in fact a glut is developing. The green bars, holding from 3 to 6 years is the sweet spot, the steepest part. If anything happens to Treasury they happen there. Customers are holding off a bit on the sweet spot.
Treasury customers are finding better opportunities at the short end, and holding onto yields at the long end. Clearly the Fed will have to raise rates on the short end. What happens after that is anybody's guess because a lot depends on what Congress is doing about excessive deficits. If Congress expands deficit spending then we get a short term period of inflation, then a double dip.
Because our main import, oil, is severely constrained, any period of inflation will quickly drive oil through the roof and shut down the economy.
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