The forecast is $76 billion less than the estimate Treasury made in August due to higher-than-anticipated tax collections in October. That's partially a result of deferred tax collections from residents and corporations in states like California where tax deadlines were extended due to extreme weather, Treasury officials said on a call with reporters on Monday.

Treasury's new estimates will inform the size of upcoming auctions for bills, notes, and bonds — the details of which are set to be released by the agency on Wednesday morning.

Yields on Treasury-issued debt immediately slid following the announcement but started to bounce back not long after. Yields have been elevated in recent weeks for a variety of reasons, one of which has been concerns about how much money the government is borrowing.

The updated estimate likely means Treasury will issue fewer bonds this quarter than investors were bracing for. When the Treasury issues more bonds it often causes bond prices to go down, which in turn pushes yields up.

The Treasury also said it expects to borrow $816 billion in the first quarter of next year. That would also mark a record level of borrowing for a first quarter.

Meanwhile, last quarter the government borrowed $1.01 trillion, or $277 billion more than the Treasury initially estimated in May.