Incorrect Terminal.app output for long lines with tabs
This has to do with line breaks. Terminal is looking for either a space, or a continuos string of characters to make a line break. In this case the first opportunity it sees to break the line is between the y and the o. The "y" is shown because the last character in an extended line is shown in the last place to hint the user that something is happening there.

Workarounds...

You could try:

echo -e "a \tb \tc \td \te \tf \tg \tyo"


and everything will appear as you'd expect it.

also something like

echo -e "ab\tcd\tef\tgh\tij\tkl\tmn\tyo"


should break between the "k" and "l"

Still this is odd behavior and defiantly worth a bug/radar report