Do Not Disturb completely broken on iOS 26.1 ?

I have iOS 26.1 on iPhone 17 Pro and Apple Watch Ultra 3.

I wanted to set up Do Not Disturb so that my phone would vibrate, but my watch would be completely silent from 10:30 PM to 7:00 AM - no automatic wake on wrist raise and no vibrations at all.

I managed to solve the wrist raise issue using Shortcuts automation, but I can't fix the Do Not Disturb mode. The watch simply keeps vibrating and alerting me for calls.

This led me to test Do Not Disturb on my phone, and I discovered it doesn't work there either! The phone keeps vibrating! No matter which Focus mode I use, it still vibrates.

I have:

• iPhone, and Watch are only 3 days old and was set up as a new device (not restored from backup)
• Disabled Focus sharing between devices
• Tried resetting network settings (read somewhere it might help)
• Set "Allow Calls From" to "No One" - doesn't help
• Checked for Emergency Bypass on contacts - none set
• System Haptics are enabled (need them for other functions)
• AdGuard VPN is turned OFF

What else should I try? Or is this a bug and should I just wait for an update?

Thanks!