Hello,
I found this article on the Garmin support site. Since it sounds like your iPhone, watch, and watch app are all up to date, If their bluetooth trouble shooting article doesn't help I believe you should contact Garmin support to speak with them about the issue.
https://support.garmin.com/en-US/?faq=NVd6I8uPsl4NkIqyM8dh99&partNumber=010-02064-00&tab=topics&topicTag=region_bluetoothconnectivit
"I’m Getting Frequent Bluetooth Connection Alerts on My Garmin Watch
Connected Alert notifications let you know when your watch connects or disconnects from your phone's Bluetooth. For most watches this setting is disabled by default. To enable this feature, see your owner's manual.
If you enable this alert it is normal to see notifications such as "Connected" or "Not Connected" appear on the watch when you lose Bluetooth connection with a paired smartphone. A loss of connection is usually due to walking away from your phone and beyond Bluetooth range which is approximately 30 feet (10 meters). The effective range is reduced when the signal has to pass through certain objects. Materials like glass, wood, metal, concrete or water can alter the signal strength of a Bluetooth connection.
If your watch does not automatically establish connection when you are back near your phone and within Bluetooth range, see Garmin Connect App Bluetooth Troubleshooting."
I hope this helps.