OAS with issuer specific yield curve

If we use a Treasury benchmark, a bond is undervalued if OAS > 0 and OAS is > than required OAS. When we use the issuer’s yield curve, why is the bond undervalued when OAS > 0 (that is, we do not need that OAS be > required OAS?

The OAS represents extra yield (vs. benchmark) demanded by investors as compensation for credit and liquidity risk.

In the case of a treasury benchmark required OAS > 0 because the bond has credit/liquidity risks relative to the benchmark.

When the issuer’s yield curve is used as a benchmark, the benchmark yield curve already incorporates the incremental risks relative to a “risk free” treasury. Hence required OAS=0.

nice explanation