Awkward line wrap in Yocto - bash

Question

I'm building an embedded Linux system for ARM architecture using Yocto (thud release).
The image builds and I'm able to flash the board. However, when I connect over serial line, I get this strange line wrapping.
You can see the character h overwriting bash prompt
The line keeps wrapping on the first line. Here is the environment:
guest#:ebox~ # printenv
LANG=C
EDITOR=vi
HZ=100
HUSHLOGIN=FALSE
USER=root
PWD=/home/root
HOME=/home/root
SHELL=/bin/sh
TERM=linux
SHLVL=1
LOGNAME=root
PATH=/usr/local/bin:/usr/bin:/bin:/usr/local/sbin:/usr/sbin:/sbin
PS1=guest#:ebox\w \033[96m# \033[0m
_=/bin/printenv
I looked for solution and the best direction seems to be run with clean environment env -i bash --norc --noprofile
And the env:
bash-4.4# printenv
PWD=/home/root
SHLVL=1
_=/bin/printenv
EDIT: Ok I tried the PS1 prompt by enclosing the unprintable characters in brackets. It worked at that time on the booted system. So I changed the configuration in /etc/profile, built and flashed the system.
Unfortunately it’s not working and I get the same issue - the line wrapping.
Here is the content of the /etc/profile:
# /etc/profile: system-wide .profile file for the Bourne shell (sh(1))
# and Bourne compatible shells (bash(1), ksh(1), ash(1), ...).
PATH="/usr/local/bin:/usr/bin:/bin"
EDITOR="vi" # needed for packages like cron, git-commit
[ "$TERM" ] || TERM="vt100" # Basic terminal capab. For screen etc.
# Add /sbin & co to $PATH for the root user
[ "$HOME" != "/home/root" ] || PATH=$PATH:/usr/local/sbin:/usr/sbin:/sbin
# Set the prompt for bash and ash (no other shells known to be in use here)
[ -z "$PS1" ] || PS1="$(cat /etc/device/hwid)#\h:\w \001\033[96m\002# \001\033[0m\002"
if [ -d /etc/profile.d ]; then
for i in /etc/profile.d/*.sh; do
if [ -f $i -a -r $i ]; then
. $i
fi
done
unset i
fi
# Make sure we are on a serial console (i.e. the device used starts with
# /dev/tty[A-z]), otherwise we confuse e.g. the eclipse launcher which tries do
# use ssh
case $(tty 2>/dev/null) in
/dev/tty[A-z]*) [ -x /usr/bin/resize ] && /usr/bin/resize >/dev/null;;
esac
export PATH PS1 OPIEDIR QPEDIR QTDIR EDITOR TERM
umask 022
I also turned on checkwinsize using shopt but didn’t work.
I also include the output of stty (over serial):
speed 115200 baud; line = 0;
-brkint ixoff iutf8
-iexten
And over SSH:
speed 38400 baud; line = 0;
eol = M-^?; eol2 = M-^?;
-brkint ixany iutf8
I connect to the board over serial using screen on Mac. In minicom I get the same issue as do my colleagues on Windows using putty or screen on Linux. Same happens over SSH.
I also checked that the terming package and those files are installed correctly in /etc/terminfo.
EDIT:
I tried to change the size of the shell by using stty cols 100 rows 40 and different sizes but the amount of characters I get on the line stays at 81 followed by carrige return. However if I record the session with script I get the correct amount of characters per line.
Here is my stty -a output:
speed 115200 baud; rows 24; columns 100; line = 0;
intr = ^C; quit = ^\; erase = ^?; kill = ^U; eof = ^D; eol = <undef>; eol2 = <undef>;
swtch = <undef>; start = ^Q; stop = ^S; susp = ^Z; rprnt = ^R; werase = ^W; lnext = ^V; discard = ^O;
min = 1; time = 0;
-parenb -parodd -cmspar cs8 hupcl -cstopb cread clocal -crtscts
-ignbrk -brkint -ignpar -parmrk -inpck -istrip -inlcr -igncr icrnl ixon ixoff -iuclc -ixany imaxbel
iutf8
opost -olcuc -ocrnl onlcr -onocr -onlret -ofill -ofdel nl0 cr0 tab0 bs0 vt0 ff0
isig icanon -iexten echo echoe echok -echonl -noflsh -xcase -tostop -echoprt echoctl echoke -flusho
-extproc
EDIT:
So I tested the behavior on HW and in QEMU. The reported issue is till present in bash on both platforms. However, when I run busybox i don't see such issue only resizing doesn't change the line width and if make the terminal smaller I get on the 80th character new line (in middle of text).
So the problem is probably tight to term being set to fixed size.