{ MERGESEQ } only generates the sequence number when you actually merge. When you're previewing, it doesn't generate a result (or if you prefer, generates an empty result). Alt-F9 once or twice should reveal the field code again.
So the behaviour is in fact "expected", even if it is rather confusing, particularly since { MERGEREC } behaves differently.
(As an aside, Preview is only a guide to what will happen when you merge. It's best to test that the actual merge does what you need).