What do you mean by "HR zones per current watch set-up: Z1 70-78%, Z2 79 -89%, Z3 90-96%, Z4 97-98%, Z5 99 - 100%?" Do you mean that you have not programmed your HR zones into your watch?
Keep in mind that it takes three minutes or so for HR to catch up to effort. During a three minute Z3 interval, your HR should just be reaching Z3 at the end of the interval.
I have a love/hate relationship with my watch..it should now or again be set up correctly.