The Office team is aware of this problem and working on a fix.
Hi Suzanne,
We have similar problem in our organisation which was first reported on Monday this week (5th July) and I wanted to check if this is the same thing as the OP reported.
When our users try to do mail merge with a Word document template they receive a security notice popup like the one in the attached image.

The fields in the Word document will not populate until "Yes" is clicked on the notice. This makes the application from which the merge is done appear frozen until the popup is addressed. One of the problem was users were not aware of this because the popup would not come up above other opened windows and was therefore hidden from view.
Could you confirm if this is the issue Microsoft are looking into? We have been using the same setup for years and this only started recently, could have been the recent office update perhaps?
We're running Office 2016 deployed with click to run installer.
Cheers
Tom
EDIT
I tested this on the most recent version (June 29th update, Version 2106 (Build 14131.20278)) and the issue is present.
I rolled back to a previous version (June 18th update, Version 2105 (Build 14026.20308)) and this does not happen anymore.
I'm not sure if this is a bug or a security feature which was enabled after the last update. Is there a way to disable this warning when doing mail merges?