Reported as FB7634737.
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Here is the output: sample.log
I have been able to fix my issue. The following command made it:
security set-key-partition-list -S apple-tool:,apple: -s -k '' ~/Library/Keychains/MyKeychain.keychain
I found the command inside fastlane code (which I am using for another project and that is working fine with code signing): https://github.com/fastlane/fastlane/blob/e874a47c6e2e0e61590a03d3b71e75e5a505d1ce/fastlane/spec/actions_specs/import_certificate_spec.rb#L72
It is also mentioned here: https://developer.apple.com/forums/thread/666107
For reference, my setup commands are now:
security create-keychain -p "" ~/Library/Keychains/MyKeychain.keychain
security default-keychain -s ~/Library/Keychains/MyKeychain.keychain
security unlock-keychain -p "" ~/Library/Keychains/MyKeychain.keychain
security set-keychain-settings -t 7200 -l ~/Library/Keychains/MyKeychain.keychain
security list-keychains -d user
echo $APPLE_CERT_DEV_ID_APP_BASE64 | base64 -D -o DevIdApplication.p12
security import ./DevIdApplication.p12 -k ~/Library/Keychains/MyKeychain.keychain -P "$APPLE_CERT_PASSWORD" -T /usr/bin/codesign -T /usr/bin/security -T /usr/bin/pkgbuild
security find-identity -p codesigning
security set-key-partition-list -S apple-tool:,apple: -s -k '' ~/Library/Keychains/MyKeychain.keychain