Both merge and persist are recursive operations, but merge takes more memory than persist, so I wouldn't be surprised that you would hit a StackOverflowError using merge before you would see it with persist. I would also expect that increasing the size of the graph would eventually cause a StackOverflowError using persist.

Tweaking -Xss should help, provided your environment has enough memory.

I would only consider this a bug if there was an infinite loop. Is this the case?