OAS lower but bond price also lower?

If volatility goes up, price of callable bond goes lower since callable bond = non-callable - option price.

What about OAS? OAS = Z Spread - Option. If option price goes up, OAS goes down. Usually lower spread (lower int rate) = higher bond price.

How do these 2 reconcile. I am sure I amissing something simple but brain is fried. Thanks

Key is that the cash flows change due to option. The spread isn’t used for valuation, the rates are

OAS is based on a volatility assumption - you estimate the vol, then create the binomial tree. then calc the bond and OAS

if the vol increases I believe you would recreate the tree and recalculate the bond price (as the above posted stated). the OAS and Z spread etc will change with new vol assumptions.