I had one of those bulges form on a brand new Peugeot PSV I bought back in 1984. I first noticed it shortly after I got the bike home and it was very very slight, on the front of the head tube, about 3/4's of the way up, under the top head lug. The headset on the bike started to get quite loose after just maybe a few weeks of initial riding. Adjusted the headset, but it started loosening again at an alarming rate and that's when I noticed that the bulge grew quite a bit, from a slight ripple on the surface to a definite bulge going almost half around the head tube.
.Took it to the Peugeot dealer I bought it from and they exchange the whole bike under warranty, no questions asked as they never seen such on their bikes before and could not explain what was happening. I still own the PSV they gave me for exchange and it never developed the same problem.
Thinking back about the whole incident with the bike, all I can think of is the head tube which is Supervitus 980, which is supposed to be heat treated, was defective and was too ductile.....but to bulge out like that so easily, the bike never going through any sort of crash or stress trauma, it must have been really bad.
Maybe your bike has the very same type of head tube defect that cause it's head tube to easily bulge out with just am headset install?