When "Block renewing only for this item. " is selected in Administration-›System preferences->Circulation preferences-> Checkout Policy-> OverduesBlockCirc, the item is not allowed to renew in the grace period.
Even in grace period the item is still already overdue - I think this is the expected behaviour. Changing to enh - we could make a change here to have this configurable.
The described behavior is the intended behavior since we can block overdue from renewal, but in greace period the item is already overdue.